D Midgley & Sons Ltd & Anor v Revenue & Customs [2011] UKFTT 187 (TC)

FTT-Tax

D Midgley & Sons Ltd & Anor v Revenue & Customs

[2011] UKFTT 187 (TC) · 2011-03-17

[1]The Appellant appealed against HMRC’s decisions on review dated 15 September 2010 upholding the issue of information notices under Schedule 36 of the Finance Act 2008 to D. Midgley & Sons Ltd and Mr. S. Midgley.

[2]The Appeal notices were lodged with the Tribunal on 13 October 2010. The grounds of appeal in respect of D. Midgley & Sons Ltd were stated as being:(a) That the information requested is not required to be contained in the Appellant’s tax return for the purpose of assessment or collection of tax and therefore any release of the information would breach Section 29 (1) (c) of the Data Protection Act 1998 (“DPA 1998”) and Section 12 of the Police and Criminal Evidence Act 1984 (“PACE 1984”);

(b) That stock and work in progress are estimates are based on the Director’s lengthy experience of the market which should satisfy HMRC’s request;

(d) That HMRC Officers had previously seen the information requested and any further request to see the records is onerous.

[3]The Notice of Appeal in request of Mr. Stuart Midgley stated the grounds of appeal as being:(a) That the information requested is not required to be contained in the Appellant’s tax return;

(b) That the information requested is not within the Appellant’s possession or power and

[4]At the hearing HMRC confirmed that the Schedule 36 Notices had been revised to take account of the Appellant’s contentions and that the information now sought was as follows: In respect of D. Midgley & Sons Ltd:(a) A breakdown of the figure of “Other Creditors” figure of £312,872, describing who these relate to and how much is owed to each.

(b) A full analysis of any transactions conducted through any director’s loan account in the 12 month period ending 31 March 2008.

(c) A full analysis of any transactions conducted through any other loan accounts in the 12 month period ending 31 March 2008.

(d) Sales and purchase day books or equivalent ledgers for the 12 month accounting period ending 31 March 2008

(e) Cash book or petty cash book for the 12 month accounting period ending 31 March 2008.

(f) Any add sheets or journals which describe how the raw data contained in the company records arrives at the final figures in the accounts.

(g) Business bank statements and accompanying paying-in books and cheque book stubs for the 12 month period ending 31 March 2008. And in respect of Mr S. Midgley:

(h) The address of the bungalow owned by the Appellant, saying when this was acquired and at what cost.

(i) The purpose for which the bungalow was used in the year ended 5 April 2009, indicating whether the property has been let.

(j) The addresses of any other property owned by the Appellant or in which the Appellant has an interest, other than the bungalow and the Appellant’s home at 85 Riley Lane.

[5]During the course of the hearing, there was agreement between the parties to revise the information notices further on the basis of the Appellant’s evidence that items listed at paragraph 4 (e) and (f) above did not exist. Those points were therefore deleted from the information notice in respect of D.

(d) reworded as:

“Please supply all sales invoices, purchase invoices or receipts, petty cash receipts, cheque book stubs, paying-in books or slips, wages records and PAYE records. These records to be supplied for the 12 month period ending 31 March 2008.”

Background

[6]Mr Binner, an Inspector of Taxes for HMRC was contacted by his colleague, Mr Healey, on 16 March 2009. Mr Healey was reviewing the PAYE returns of D. Midgley & Sons Ltd and raised concerns relating to explanations given to him by the Appellant concerning loan accounts used by the Appellant’s sons for payment of wages from the Appellant Company. The pay records showed that the Appellant’s two sons had earned £7,200 in 2001/2002 but that this had reduced to £5,200 in 2002/2003 and 2003/2004. Mr Healey stated that he had asked the Appellant about this and was told that by the Appellant that his sons had deposited wages in earlier years to loan accounts with the company, subsequently withdrawing the accumulated deposits in 2004/2005 and 2005/2006. Mr Healey’s concerns related to how the Appellant’s sons could afford to do this and why they would do this; nether being directors of the Appellant Company. Mr Healey stated that the Appellant had been unable to provide company records detailing these transactions as the originals had been lost and only a reconstruction could be provided.

[7]On receipt of this information, Mr Binner stated that he checked the company accounts going back to 2002 but found no entries relating to loan accounts operated by the Appellant’s sons. The accounts to the year ended 31 March 2003 showed entries in connection with a loan account for the Appellant, but the records thereafter did not contain any further entries in this regard, which Mr Binner noted coincided with the cessation of the Appellant Company’s accountants in January 2004.

[8]Mr Binner also noted that the company accounts to 31 March 2008 included a large figure for “other creditors” but no further explanation or breakdown. Further checks by Mr Binner raised concerns as the accounts to 31 March 2008 show that the Appellant did not take any director’s remuneration or dividends for that year, and the previous two years showed that the Appellant only took £2,500 per year.

[9]Mr Binner checked the Appellant’s personal returns and pay records for his wife who was an employee of the Appellant Company and based on these records he assembled an income schedule which indicated that Mr and Mrs Midgley had a shortfall in income of £6,011 in the period ended 31 March 2008.

[10]As a result of these concerns, Mr Binner accompanied Mr Healey to his next meeting with the Appellant on 24 August 2009. Mr Binner stated that on this occasion he explained to the Appellant that he was examining the company corporation tax returns and accounts. A further meeting was arranged on 17 November 2009. Following the meeting on 17 November 2009, Mr Binner came to the conclusion that the Appellant did not wish to provide responses to questions on a voluntary basis and he therefore decided to address his queries through formal enquiries. The case for HMRC

[11]Mr Hall explained that the Data Protection Act 1998 (“DPA 1998”) arose out of a 1995 European Directive which stated that personal information should be protected. He submitted that the DPA 1998 did not apply to the Appellant’s case as there are a number of criteria which must be fulfilled, namely that the personal data must be kept in a relevant filing system and that the information must be registered with the Information Commissioner. Mr Hall submitted that the Appellant had provided no evidence to show that the requirements were satisfied; that there was no relevant filing system and that the Appellant was not registered. Mr Hall submitted that there was a distinction between business records (which he contended were in the possession of the Appellant) and information covered by the DPA 1998. Mr Hall further submitted that HMRC are entitled to use Section 29 DPA 1998 to protect information, but that the provisions are not available to the Appellant.

[12]Mr Hall submitted that in respect of the information sought at paragraph 4 (d), (e), (f) and (g) above, the Tribunal had no jurisdiction to hear the appeal. Mr Hall contended that the information requested arise from entries on the Appellant’s accounts and returns and are statutory records. Mr Hall referred the Tribunal to Schedule 36, Part 5, Section 29 (2) of the Finance Act 2008 which specifically precludes a taxpayer appealing against a requirement in an information notice to produce any document which forms part of the taxpayer’s statutory records.

[13]Mr Hall accepted that PACE 1984 Section 12 was relevant to the proceedings by virtue of Schedule 36, Part 4 Section 19 of the Finance Act 1998, but stated that the Appellant had failed to satisfy the requirements of the provision.

[14]In oral evidence to the Tribunal, Mr Binner confirmed the contents of his witness statement as true and accurate. He stated that the meeting with the Appellant on 24 August 2009 was short as the Appellant had stated he was still trying to obtain original records relating to his sons’ loan accounts. Mr Binner stated that at the meeting on 17 November 2009 the Appellant had stated that he no longer had any original records to support the figures relating to the loan account balances, but that at the time he would have had records showing the input/output using debit/credit cash column sheets. Mr Binner confirmed that the Appellant stated that in respect of his own loan account with the company, the records were at home and therefore not available for inspection by Mr Binner at that time, which, he noted, conflicts with the Appellant’s contention that the records do not exist.

[15]Mr Binner confirmed that the Appellant was asked at the meeting about his ownership of a property used as accommodation by employees of the Appellant Company and that the Appellant had confirmed that he personally owned a second property, a bungalow, which had been unoccupied since its acquisition. Mr Binner noted that letting income had been declared on the Appellant’s personal return for the year ended 5 April 2002, that there had been no declaration that the income had permanently ceased and that there were no further declarations of letting income on later returns. Mr Binner stated that the information sought by HMRC relating to the bungalow and any other property owned by the Appellant came as a result of the uncertainty as to whether the declared letting income related to the bungalow (which the Appellant had stated was unoccupied) or another property and that HMRC could not verify the position without the address, which the Appellant had not given.

[16]Mr Binner stated that his colleague, Mr Healey, had explained to the Appellant the options available to HMRC as to how to resolve the issues raised at the meeting and that he had added that formal enquiries may be opened.

[17]Mr Binner was cross examined by the Appellant about the notes of two meetings which had been exhibited in the bundle. Mr Binner declined to comment on his colleague, Mr Healey’s note of a meeting with the Appellant on 5 February 2009 at which Mr Binner was not present. Mr Binner stated that the note of the meeting with the Appellant on 17 November 2009 had been written by his colleague and signed by him as accurate. Both exhibits had annexed to them correspondence to the Appellant dated 10 February 2009 and 24 November 2009, which invited the Appellant to sign and return a copy of the notes with any amendments he may wish to make. Mr Binner confirmed that copies had never been returned by the Appellant.

[18]Mr Binner stated that he sought the information contained on the Schedule 36 Notices as his income schedule, which was based on the information available to him, indicated that the Appellant may have an additional source of income and that the information given by the Appellant in respect of the bungalow needed verification. Mr Binner accepted that he recalled the Appellant saying at one of the meetings that he had savings which he had used for living expenses, however Mr Binner did not accept that this negated the necessity for the Appellant to provide the information requested. Mr Binner disputed the Appellant’s assertion that all records had been visibly present at the Company’s premises during the meetings on a desk next to Mr Healey and that he could not comment as to what, if any, records had been seen by Mr Healey.

[19]Mr Binner accepted the Appellant’s point that the schedule prepared by him was not accurate; the point being that it was prepared on the basis of the limited records available to him and served as no more than an indicator as to where his concerns arose. The Appellant’s Case

[20]The Tribunal was assisted by the Appellant’s skeleton argument and two witness statements dated 17 January 2011 and 14 February 2011.

[21]The Appellant gave oral evidence to the Tribunal in which he stated that he would be in breach of the DPA 1998 and PACE 1984 if he were to provide HMRC with the personal data requested under Schedule 36. The Appellant contended that the personal information held by him included PAYE records, names of investors and Company records, all of which he considered to be personal information. The Appellant stated that he kept a filing system as required and that there is no requirement for him to register as a private, as opposed to public, data controller.

[22]The Appellant agreed with the principle that the provisions did not apply in respect of collection of taxes, but stated that he did not believe that this applied to his case on the basis that the information sought by HMRC, such as the names of the “other creditors”, is not required to be included on his returns and cannot therefore be said to be related to an assessment or collection of taxes.

[23]The Appellant explained that he runs a small limited company with 6 employees and that his calculations of debits and credits takes no more than 5 minutes, in which he makes jottings which he then shreds once the accounts are approved. The Appellant stated for this reason a number of the items sought by HMRC simply do not exist and that he keeps information, such as that relating to creditors, in his head.

[24]The Appellant, under cross examination, accepted that he was aware of his obligations under Section 221(1) and (2) of the Companies Act 1985, which requires him to keep accounting records “sufficient to show and explain the company’s transactions and shall be such as to...disclose with reasonable accuracy, at any time, the financial position of the company at that time...” The Appellant contended that the legislation does not specifically require a breakdown of information to be given and confirmed that he would not disclose the names of “other creditors” who he described as three investors.

[25]The Appellant was referred by Mr Hall to the Section 12 of PACE 1984, upon which the Appellant sought to rely. The Appellant contended that the wording of the Act did not require him to satisfy the provisions of the subsections, but that the legislation could be applied without reference to the words highlighted in bold below: 12 “In this Part of this Act “ personal records ” means documentary and other records concerning an individual (whether living or dead) who can be identified from them and relating— (a)to his physical or mental health; (b)to spiritual counselling or assistance given or to be given to him; or (c)to counselling or assistance given or to be given to him, for the purposes of his personal welfare, by any voluntary organisation or by any individual who— (i)by reason of his office or occupation has responsibilities for his personal welfare; or (ii)by reason of an order of a court has responsibilities for his supervision .”

[26]The Appellant contended that the information in existence had already been inspected by Mr Healey on his first visit to the Appellant’s premises. He stated that there had been at least 7 meetings with HMRC, each lasting approximately 3 hours and that he viewed the situation as one large enquiry into his affairs. The Appellant stated that Mr Healey had made no discovery but had stated to him that due to pressure from his boss he was looking for a settlement from the Appellant. The Appellant subsequently accepted that Mr Binner may not have seen the information requested, but that as Mr Healey had seen the information, the request under Schedule 36 by HMRC was onerous and unreasonable.

[27]The Appellant referred the Tribunal to his brief notes of the meetings which took place on 5 February 2009 and 17 November 2009 and stated that he disputed the records exhibited by HMRC. The Appellant stated he had never received a copy of HMRC’s notes and had no time to check them.

[28]The Appellant accepted in cross examination, when shown a letter confirming a meeting on 18 June 2009, that Mr Binner had attended his premises on that date but found that the Appellant was not present and that his recollection of the meetings with HMRC may not be wholly accurate.

[29]The Appellant contended that the information sought under the information notices is not reasonably required, and that for over 30 years the Appellant has never denied HMRC any information. Decision

[30]The issue for the Tribunal to determine is whether the information sought by HMRC as set out in the revised Schedule 36 Notices is reasonably required for the purpose of checking the Appellant’s tax position.

[31]The Appellant raised a number of legal and factual arguments, and each will be dealt with in turn.

[32]As regards the jurisdiction of the Tribunal, HMRC contend that by virtue of Schedule 36, Part 5 Section 29 of Finance Act 2008: 29 (1)Where a taxpayer is given a taxpayer notice, the taxpayer may appeal to the First-tier Tribunal against the notice or any requirement in the notice. E+W+S+N.I. (2)Sub-paragraph (1) does not apply to a requirement in a taxpayer notice to provide any information, or produce any document, that forms part of the taxpayer's statutory records as defined by Schedule 36, Part 9 Section 62 of the Finance Act 2008 and with reference to Section 12B of the Taxes Management Act 1970, Section 221 of the Companies Act 1985 and Section 386 of the Companies Act 2006, in respect of those records which are statutory records this Tribunal has no jurisdiction to hear the appeal The Tribunal is bound by the legislation and therefore finds as a fact that it has no power to allow an appeal in respect of those items requested by HMRC, as set out at paragraph 4 (d) (as revised) and (g) of this Decision, which form part of the Appellant’s statutory records.

[33]In respect of the Appellant submission that he would be in breach of the DPA 1998 if he were to reveal information as to the “other creditors” referred in his accounts, or information as to the bungalow the Tribunal carefully considered the provisions relied upon by the Appellant and his submissions thereon. The Tribunal rejected the contention that the Appellant fell within the provisions of the Data Protection Act 1998. The Tribunal accepted Mr Hall’s submission that the Appellant had failed to provide any evidence upon which the Tribunal could conclude that the Appellant could be deemed a “data controller” and that the information sought by HMRC was protected as “personal data”. The Tribunal took the view that the records referred to by the Appellant were business records as opposed to data protected by the DPA 1998. However, even if the Appellant had so satisfied the Tribunal, the provisions of Section 29 clearly state that personal data processed for the purpose of:

“...the assessment or collection of any tax or duty or of any imposition of a similar nature, ...are exempt from the first data protection principle.”

[34]The Appellant relied upon Section 9A (4) of the Taxes Act 1970 (which relates to personal individuals) and in the alternative Schedule 18, Paragraph 24 of the Finance Act 1998 (which relates to company records) to support his argument that no breakdown of items such as “other creditors” is required to be contained within his tax returns and consequently does not pose any tax implications. The Tribunal found that the statutory provision relied upon by the Appellant does not restrict the powers of HMRC under Schedule 36, which allows HMRC to require any information “reasonably required...for the purpose of checking the taxpayer’s tax position”. The Tribunal therefore did not accept the Appellant’s argument.

[35]The Tribunal rejected the Appellant’s submission that the information sought by HMRC does not relate to the assessment or collection of tax. The Tribunal found as a fact that the legislation under Schedule 36, Part 1 Section 1 of the Finance Act 2008 which refers to information required “for the purpose of checking the taxpayer’s tax position” includes, by virtue of Part 9 Section 64 of the Act, “past, present and future liability to pay any tax” . The Tribunal found as a fact that the information sought by HMRC was to verify the Appellant’s returns and accounts and to ensure that all sources of income and liabilities had been declared and paid.

[36]The Tribunal considered the Appellant’s submission that he would be in breach of Section 12 of PACE 1984 were he to provide the information sought by HMRC. The relevant section is set out at paragraph 24 of this Decision. The Tribunal rejected the Appellant’s interpretation of the statute. On the Appellant’s own evidence, none of the subsections within Section 12 applied to the information he sought to protect. The Tribunal found that at least one of the subsections (a) to (c) must be satisfied in order for the legislation to apply, otherwise the words “...and relating...” would be rendered meaningless, which cannot have been the intention of Parliament. The Tribunal therefore rejected the Appellant’s submission and found that the provisions of PACE 1984 did not prevent the disclosure of information required by HMRC in the Schedule 36 Notices.

[37]The Tribunal considered the Appellant’s evidence that HMRC had already seen the information requested. The Tribunal found that the Appellant had not distinguished between the differing roles of Mr Healey and Mr Binner. The Tribunal did not hear evidence from Mr Healey, but accepted Mr Binner’s evidence that his involvement with the Appellant related to PAYE records. In evidence the Appellant referred to the records being made available to Mr Healey during his meetings with the Appellant. The Appellant appeared less certain as to whether Mr Binner had seen the records and the Tribunal found as a fact that his recollection was inaccurate, as evidenced from the meeting with which the Appellant had forgotten he did not attend. The Tribunal accepted the clear recollection of Mr Binner that he had not seen the records or information requested in the Schedule 36 Notices and consequently found that these were reasonable required for the purpose of checking the Appellant’s tax position.

[38]The Tribunal did not accept the Appellant’s submissions that providing information, which the Appellant agreed exists, is onerous.

[39]The Tribunal considered the Appellant’s assertion that he had been threatened by Mr Healey to agree to a settlement and the notes of the two meeting with HMRC as recorded by the Appellant were considered. The Tribunal did not find that this issue necessarily went to the matter to be determined; namely whether the information sought by Mr Binner is reasonable required, but found as a fact that it preferred the evidence of Mr Binner as to the fact that the various avenues that could be pursued by HMRC were explained to the Appellant and that this had not been intended as a threat in any way. The Tribunal preferred the record of the meeting on 17 November 2009 exhibited by HMRC over that of the Appellant, on the basis that the note was full and therefore more likely to be representative of a 2 or 3 hour meeting as described by the Appellant, unlike the Appellant’s brief note containing 9 lines, which the Tribunal found as a fact was a generalisation of the points which had appeared most salient to the Appellant.

[40]The Tribunal concluded that the information sought in the amended Schedule 36 Notices is reasonably required for the purpose of checking the Appellant’s tax position.

[41]The appeal is dismissed.

[42]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. TRIBUNAL JUDGE RELEASE DATE: 17 March 2011

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