New Way Cleaning Ltd v Revenue and Customs (INCOME TAX/CORPORATION TAX : Other) [2017] UKFTT 293 (TC)
FTT-Tax
New Way Cleaning Ltd v Revenue and Customs (INCOME TAX/CORPORATION TAX : Other)
[2017] UKFTT 293 (TC) · 2017-03-28
[57]“The definition of statutory records in Sch 36 means that if a taxpayer is required by any statutory provision relating to tax to keep a document, then that document is a “statutory record”. There is no necessary link between the tax which is under enquiry, and the source of the obligation to keep the records for tax purposes. So, for example, if a document is required to be kept by VATA, then it is a “statutory record” for the purposes of Sch 36, even if the Notice relates to documents required for an enquiry into the individual’s self-assessment return. ”30. Although this decision is not binding upon me, I respectfully agree with it.31. In addition, HMRC accepted that it bore the burden of proof in showing that the information/documents specified in the notice were either statutory records or reasonably required to check the appellant’s tax position. The burden of proof in relation to an information notice under paragraph 1 Schedule 36 FA 2008 was discussed by this Tribunal in Joshy Mathew v Revenue & Customs [2015] UKFTT 139 (TC) at [66]-[92] (Judge Redston and Ms Myerscough). The Tribunal concluded that, taking account of the presumption of regularity, the balance of authorities indicated that the burden of proof lay upon the taxpayer rather than HMRC. Nonetheless, as I have said, HMRC accepted that it bore the burden of proof in this case and it seemed to me that this was a pragmatic and sensible way to proceed.32. As regards the seven matters listed in the notice, I shall deal with each item in turn. Item 1 – bank statements33. HMRC submitted that the bank statements were statutory records. The bank statements were required, HMRC argued, to check the appellant’s tax position and to help understand the position of the subcontractors. I agree with that submission. It is very hard to see how a company can submit a tax return which is not, at least in part, dependent on its bank statements. The company’s accounts will certainly take into account the company’s bank statements as part of its primary records. Moreover, the bank statements which show what payments were paid to employees and subcontractors.34. In the end, Mr Kinsella did not dispute this analysis.35. In any event, I consider that the appellant’s bank statements were reasonably required to check the company’s tax position in relation to PAYE. The bank statements would enable HMRC to check the individuals to whom the appellant had made payments and the amounts and dates of those payments.36. Accordingly, I conclude that item 1 (bank statements) comprise statutory records. Alternatively, I consider that these documents were reasonably required by HMRC to check the company’s tax position. Item 2 – purchase ledger37. Again, HMRC contended that the appellant’s purchase ledger were part of the company’s statutory records. Alternatively, HMRC contended that the purchase ledger was reasonably required to check the appellant’s tax returns.38. I agree with HMRC’s submission that the purchase ledger forms part of the appellant’s statutory records. A purchase ledger would clearly be part of the records required to enable a company to complete its tax return.39. In any event, I also consider that the purchase ledger was reasonably required by HMRC to check the appellant’s returns. In particular, in the light of the letter of 8 October 2013 from the appellant’s accountants regarding cleaning equipment, I consider that the purchase ledger would have been reasonably required to check the appellant’s tax position (i.e. whether it actually owned the equipment used by the cleaners) and to clarify any uncertainty arising as a result of that letter and statements made at the 28 April meeting.40. In the event, Mr Kinsella accepted that the purchase ledger formed part of the appellant’s statutory records. Item 3 – mileage logs41. HMRC contended that the mileage logs were reasonably required to check the appellant’s tax position. HMRC had concerns in respect of the benefits in kind provided to employees and travel expenses. HMRC abandoned its previous position that the mileage logs constituted part of the appellant’s statutory records.42. In my view, in order to substantiate travelling expenses claimed by the appellant’s director or any other employee, the mileage logs were records which HMRC reasonably required to check the company’s tax position.43. In the event, Mr Kinsella agreed with this conclusion. Item 4 – director’s loan account/current account44. The request for documents/information irrespective any director’s loan or current account was prompted by the reference in the notes of the meeting of 28 April 2016 to the fact that Mr Lepadatu had injected £15,000 into the appellant by way of loan. Mr Kinsella contended that this was a capital account and that there was no director’s loan account or current account.45. I considered that a capital, loan or current account would be part of the appellant’s statutory records because it would have been necessary to have referred to this information in compiling the accounts of the company on which the corporation tax return was based. Moreover, it would be necessary to ascertain the terms of any loan (e.g. was any interest payable) in drawing up the appellant’s corporation tax computations. In any event, I also consider that this information was reasonably required to check the appellant’s tax position. It is reasonable for HMRC to ascertain whether the appellant lent money to its directors and, if so, on what terms.46. Again, Mr Kinsella accepted this conclusion. It was agreed that details of the £15,000 capital account would be supplied. To the extent that there was no loan or current account, there would be no documents or information to provide and that this would be noted by the appellant in its response to the notice. Item 5 – all employee contracts/Terms & Conditions47. There was a discussion about this documentation requirement at the hearing. Mr Goulding contended that the employees’ contracts were required in order to establish what terms and conditions applied to the employed cleaner and in what way these differed from the role of the subcontractor that necessitated the two roles having different employment status.48. On this basis, it seemed to me that the notice was, in this respect, too widely framed. The relevant employment contract was that of the employed cleaner(s).49. At the hearing, it was, therefore, agreed that the reference in item 5 to “all employee contracts/Terms & Conditions” should be amended to refer to “all employed cleaners’ contracts of employment/Terms & Conditions.” Pursuant to the powers conferred by paragraph 32 (3) (b) Schedule 36 FA 2008, I have decided to vary the information notice in this manner. Item 6 – list of all employees TUPE’d over to New Way50. Mr Arnold’s evidence was that he required this information to check whether a change in status had occurred as regards employed cleaners transferred to the appellant. HMRC’s submission was, therefore, that this information was reasonably required to check the appellant’s tax position. I agree with this submission and understood that Mr Kinsella did so too. Item 7 – capital/loan account for the amount owed by the company to the director51. Mr Arnold’s evidence was that he required this information to check how the loan to Mr Lepadatu was being repaid and how it should be factored into his income from the appellant. HMRC contended that the capital/loan account was part of the appellant’s statutory records and was, in any event, reasonably required in order to check the appellant’s tax position.52. I agreed with HMRC’s submissions on this point as did, ultimately, Mr Kinsella. It seems to me that in preparing the corporation tax computations of the appellant, it would be necessary to establish the terms of any loan made by Mr Lepadatu to the company. Accordingly, it seemed to me that this information would constitute part of the company’s statutory records. In addition, I concluded that this information was reasonably required in order to check the appellant’s tax position. Conclusion53. In respect of items 1, 2, 4, and 7 of the notice, I have reached the conclusion that the information/documents required by the notice constitute part of the appellant’s statutory records and that, accordingly, there is no right of appeal. Therefore, insofar as the appeal relates to those items, the appeal must be struck out. In the alternative, I have concluded that each of these items was required to check the appellant’s tax position.54. In relation to items 3 (mileage logs) and 6 (list of all employees TUPE’d over to New Way) I have agreed with HMRC’s submission that the information/documents are reasonably required to check the appellant’s tax position55. As regards item 5, I have varied the notice as recorded in paragraph 49 above.56. At the hearing, the parties agreed that the appellant should have 30 days from the date of the release of this decision to provide the above documents/information and I specify this period as the period within which the appellant must comply with the notice. 57. There is no right of appeal in respect of this decision in accordance with paragraph 32 (5) Schedule 36 FA 2008. GUY BRANNAN TRIBUNAL JUDGE RELEASE DATE: 11 APRIL 2017