Rankin v Revenue and Customs (INCOME TAX/CORPORATION TAX : Other) [2016] UKFTT 541 (TC)

FTT-Tax
Rankin v Revenue and Customs (INCOME TAX/CORPORATION TAX : Other)
[2016] UKFTT 541 (TC) · 2016-07-20
[128]“What ultimately governs the case is whether the statements sought are reasonably required for the purpose of checking the appellant’s tax position. The manuals do not alter the fact that that is an objective test. And we find that that test was satisfied. ” 25. Ms Browne submitted that the test to ask is:
“what would HMRC need for the purpose of checking the Appellant’s tax position?”
Given the limited facts known about the Appellant’s finances, Ms Browne submitted that each of the items requested are reasonably required for the purpose of checking the Appellant’s tax position. 26. Ms Browne highlighted the restrictions governing Schedule 36 as to what information can be requested and noted that there is no suggestion that the items requested are not in the power or possession of the Appellant or that the items fall within section 12 PACE 1984. 27. In relation to the Appellant’s objection to the notice relying on Article 8 ECHR (the right to respect for private and family life) Ms Browne referred me to The Commissioners for HM Revenue and Customs and Sokoya [2008] EWHC 2132 (Ch) in which Floyd J said:[13]“ So far as article 8 is concerned, Mr Sokoya relied on the intrusion into his privacy that compliance with the section 19 notice would entail. Article 8 expressly recognises the need in a democratic society to preserve the economy and wellbeing of the country. Regrettable though it might seem, tax collection comes fully within that exception. I therefore see no reason why a valid section 19A notice should be rendered any less so in this case by the provisions of article 8 of the convention. ”28. Ms Browne acknowledged that Sokoya relates to the predecessor to Schedule 36, Section 19A TMA 1970, however submitted that it is nevertheless relevant to the issue.29. As to the Appellant’s argument that HMRC are on a fishing expedition in opening the enquiry and requesting information, Ms Browne highlighted that a Section 9A enquiry must be opened within the enquiry window and following notice of the enquiry being served on the taxpayer. There is no requirement for HMRC to justify the opening of an enquiry if Condition A of paragraph 21 has been met. As to Condition B of paragraph 21 which requires that HMRC has “reason to suspect”, Ms Browne referred to Spring Capital Ltd and The Commissioners for HM Revenue and Customs [2015] UKFTT 8 (TC) at [33] & [34]:
“A Fishing expedition? By using the term ‘fishing expedition’ I understood Mr Thomas to mean that HMRC were seeking to investigate the appellant’s tax return without having any reason to suspect that it was wrong. So did HMRC exceed its powers in issuing the information notice? Paragraph 1 of Sch 36 provides that an HMRC officer can issue an information notice ‘if the information or document is reasonably required by the officer for the purpose of checking the taxpayer’s tax position’… There is nothing in this section that requires HMRC to suspect that the return is incorrect before issuing an information notice. HMRC are entitled to check taxpayer’s tax position and they are entitled to any documents or information reasonably required for the purpose of doing so. In other words, HMRC are entitled to undertake ‘fishing expeditions’ when checking returns: they do not need suspicion in order to check a tax return.”
The Appellant’s case 30. On behalf of the Appellant, Mr Leslie made the following submissions: HMRC’s suspicion of undeclared interest from loans 31. Mr Leslie submitted that HMRC has failed to show sufficient evidence that the loans assigned to the Appellant on 18 June 2010 became income bearing three tax years later in the year currently under enquiry. 32. Mr Leslie noted that HMRC did not challenge the Appellant’s 2010/11 Self Assessment return in which the assignment of the loans was declared and CG taxes paid. It logically follows therefore that if the loans were not interest generating in 2011/2012 no interest would be expected in 2013/2014. 33. Mr Leslie relied on the earlier investigation by HMRC’s Specialist Investigation Unit into the Appellant’s 2011/2012 return which had led to the relevant enquiry being closed without amendment to the return. Similarly HMRC closed an enquiry into the Appellant’s 2012/2013 return with no amendments. 34. Mr Leslie submitted that on the basis that no interest was returned in 2011/2012 as none was received, the information sought is not reasonably required. Are the Respondents reasonably entitled to ask the Appellant if he has any connection to the offshore company Lugano Group Ltd or has transferred assets into that offshore company? 35. Mr Leslie asserted that any income arising from the Appellant’s investments will be declared and paid to the appropriate tax authorities as and when they are crystallised. HMRC has failed to exercise its power to pursue the alternative avenue open to it; namely requesting information under UK/Guernsey Tax Information Exchange. 36. HMRC has failed to set out why they suspect the Appellant has transferred assets abroad and any income arising. Mr Leslie noted that the Appellant is not listed as a director of the Lugano Group Ltd. HMRC’s use of Schedule 36 is based on speculative assumptions. The Appellant’s position 37. The information or documentation sought by HMRC must be reasonably required. By virtue of its earlier enquiries HMRC has already been satisfied that the Appellant has sufficient means and that there was no interest generating income in earlier years. 38. As to the issue of Transfer of Assets Abroad, the Appellant was neither an officer or director of the offshore companies and had no income in 2013/14 to declare. Mr Leslie submitted that the Appellant’s case is similar to Kevin Betts and The Commissioners for HM Revenue and Customs, relying on [18] – [22]:[18]“T he way in which HMRC relied on condition B was put in their statement of case as follows— “29. HMRC’s contention is that the information already provided by Mr Betts gives a partial picture of his movements and more particularly his ties to the UK in the relevant period. Furthermore, based on that information there remains a doubt that he had left the UK permanently by 6 April 2008 to become not resident. The requested information will complete that picture and, if it shows that his ties remained substantially in tact [sic], condition B is satisfied . The Inspector will be able to show that an amount which ought to have assessed [sic] may not have been. The information is therefore reasonably required for the purpose of checking Mr Betts tax position and the appeal should be dismissed.”[emphasis added][19]There are three ways in which condition B may be met. These are set out in paragraph 21(6)(a) to (c) of Schedule 36. Mr Birkett explained that his reliance on condition B was based on the first of those three ways, in paragraph 21(6)(a) of Schedule 36. That paragraph provides that “Condition B is that, as regards the person, an officer of Revenue and Customs has reason to suspect that…(a) an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed”.[20]We asked Mr Birkett whether he was really saying, as indicated in paragraph 29 of HMRC’s statement of case (set out above), that he needed the information in order to satisfy condition B. Mr Birkett replied “yes”.[21]Mr Gordon submitted that that response from Mr Birkett would seem to kill the case. Mr Gordon asked us therefore to allow the appeal on the basis of that response.[22]We agreed with Mr Gordon that it appeared to be the wrong way round to seek the documents in order to satisfy condition B. The position appeared rather to be that condition B must be satisfied in order for the documents to be validly sought. We thought it fair however to explore HMRC’s position further. ”39. Mr Leslie submitted that HMRC have failed to satisfy the validity test at paragraph 1(1) of Schedule 36, namely that the information is reasonably required. Discussion and Decision40. I considered the parties’ submissions carefully together with all of the documents provided to me. The issue for me to decide is whether the items requested by HMRC are reasonably required by the officer for the purpose of checking the Appellant's tax position.41. The notice requested that the Appellant produce “ copies of loan agreements for the loans to Bloomsbury Ltd, Woolsington Bridge Nurseries and Leftbank Development Ltd. If there are no written agreements please let me know the agreed terms and conditions of the loans, supported by underlying paperwork such as director’s meeting notes etc”.42. In my view these documents are clearly relevant as part of overall picture in order to establish the Appellant’s true liabilities; the fact that HMRC had previously been provided with documents in the course of an earlier enquiry does not alter this position. First it must be noted that the documents were considered in a wholly different context. Second, the documents were produced a number of years ago and there may since have been amendments to the terms and conditions which impact on the Appellant’s tax position.43. I also agree with and adopt the approach taken by Judge Poole in Whitefields Golf Club Ltd, Whitefields Golf Ltd & Draycote Hotels Ltd and The Commissioners for HM Revenue and Customs . The fact that HMRC are unable to locate the documents previously provided by the Appellant is a matter of administration and has no bearing on whether the documents set out in the notice are “reasonably required” .44. The information notice issued by HMRC requested the full address of the company Bloomsbury Ltd. In circumstances whereby HMRC are currently unable to identify the company with any certainty without this information I am satisfied that it is reasonably required for the purpose of checking the Appellant’s tax position.45. HMRC has also requested clarification as to whether or not the Appellant is a director of the Lugano Group. The Appellant is clearly associated with the Lugano Group in his role as a director of Lugano Developments Ltd. I am satisfied that at present the ultimate ownership of the Lugano Group is not transparent and HMRC require the information to check whether or not, as it appears on the face of the limited information known, the Appellant does not receive any financial benefit from his loans to Lugano Developments Ltd. I am therefore satisfied that this information is reasonably required for the purpose of checking the Appellant’s tax position.46. For the same reason I am satisfied that the information as to whether or not the Appellant has any connection to the ownership of Lugano Group, either directly or indirectly is reasonably required. HMRC also seek to establish whether cash or assets have been transferred to the Lugano Group and whether the Appellant has “ the power to enjoy the income or gains of Lugano Group in any way, either through share ownership or being the beneficiary of a trust etc”. On the basis that the information known to HMRC so far is limited and does not enable HMRC to check the Appellant’s tax position in this regard, I am satisfied that the information is reasonably required.47. I agree with and adopt the words of Floyd J in Sokoya as to the fact that: “Article 8 expressly recognises the need in a democratic society to preserve the economy and wellbeing of the country. Regrettable though it might seem, tax collection comes fully within that exception.”48. Although the case involved a section 19A notice as opposed to a notice under Schedule 36 the principle is equally applicable to the Appellant’s appeal.49. I rejected Mr Leslie’s submission that there is a requirement for HMRC to demonstrate sufficient evidence to justify its suspicions or a basis for HMRC’s wish to check if assets have been transferred abroad. As to the complaint that HMRC are conducting a fishing expedition, Judge Mosedale’s comments in Spring Capital Ltd summarise the position accurately: “There is nothing in this section that requires HMRC to suspect that the return is incorrect before issuing an information notice. HMRC are entitled to check taxpayer’s tax position and they are entitled to any documents or information reasonably required for the purpose of doing so. In other words, HMRC are entitled to undertake ‘fishing expeditions’ when checking returns: they do not need suspicion in order to check a tax return.”50. In my view the earlier enquiries opened by HMRC into the Appellant’s tax affairs, which I accept were closed without any amendments to the Appellant’s returns, do not have a bearing on whether the information and documents set out in the notice are reasonably required. Those enquiries took place in a different context and related to earlier years; the information and documents sought under the notice against which the Appellant now appeals relate to the tax year ended 5 April 2014 and I am satisfied that the information and documents set out in the notice are reasonably required to check the Appellant’s tax position for that year. I was also satisfied that HMRC’s decision not to seek information from the Guernsey Tax Authority has no bearing on the test that I must and do apply in this case.51. By virtue of paragraphs 1(1) and 21(1) and (3) of Schedule 36, two requirements must be satisfied for a valid notice to be given. First, that the information or document sought by the notice must be reasonably required by the officer giving the notice for the purpose of checking the taxpayer's tax position requirement (paragraph 1(1)). Second, that at least one of conditions A to D must be met (paragraph 21(1) and (3)):[12]21(1) Where a person has made a tax return in respect of a chargeable period under section 8, 8A or 12AA of TMA 1970 (returns for purpose of income tax and capital gains tax), a taxpayer notice may not be given for the purpose of checking that person's income tax position or capital gains tax position in relation to the chargeable period… (3) Sub-paragraphs (1) and (2) do not apply where, or to the extent that, any of conditions A to D is met. (4) Condition A is that a notice of enquiry has been given in respect of—(a) the return, or(b) a claim or election (or an amendment of a claim or election) made by the person in relation to the chargeable period in respect of the tax (or one of the taxes) to which the return relates (“relevant tax”), and the enquiry has not been completed. (6) Condition B is that, as regards the person, an officer of Revenue and Customs has reason to suspect that— (a) an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed, (b) an assessment to relevant tax for the chargeable period may be or have become insufficient, or(c) relief from relevant tax given for the chargeable period may be or have become excessive. 52. I did not agree that Betts assisted the Appellant’s case; in Betts HMRC accepted that there was no valid enquiry for the purposes of Condition A, and that Condition A was not met. HMRC sought instead to rely on Condition B. In the appeal before me there was no suggestion that the enquiry was not valid and I do not make that finding. On the basis that Condition A is satisfied there is no need to consider the alternate Conditions further. 53. For the reasons set out above I dismiss the appeal and confirm the notice under appeal. JENNIFER DEAN TRIBUNAL JUDGE RELEASE DATE: 2 AUGUST 2016