Qubic Taxassethound LTD & Ors v Revenue & Customs (INCOME TAX/CORPORATION TAX : Appeal against data-holder notice)
[2020] UKFTT 215 (TC) · 2019-02-05
[139]It must be reasonable for a recipient of Schedule 36 notice not to comply with such a notice whilst that notice is being challenged in the Tribunal or in the courts. Otherwise any such appeals would be rendered nugatory . (See Sokoya at [23].) 140. In the case of both Qubic Trustees and Orchard, the information notices were issued on 30 March 2016 and the companies appealed against the information notices in time on 11 April 2016. The penalty notices appealed against were issued on 6 May 2016 and 29 June 2016 respectively, while the Appellants were still awaiting the HMRC review conclusion letters, which were subsequently issued only on 27 January 2017. Within the applicable time limit, the companies then appealed to this Tribunal. It follows that both companies have had a reasonable excuse for not complying with the information notices from the date that they were issued until the present date, and that they will continue to have a reasonable excuse until the present appeal proceedings are concluded. 141. The appeals of both companies against the penalties is accordingly allowed. Appeal TC/2017/02275 (Assethound) 142. The appendix to the Appellants’ skeleton argument confirms that the appeal of Assethound is limited to items 1, 2, 5, 16 and 17-22 in the information notice appealed against. 143. The challenged items in the information notice seek information about The Assethound Limited Employee Trust 2014 (the “Trust”), an employee benefit trust used by Assethound. 144. Item 1 reads as follows: All documents recording discussions prior to 28 February 2014 in respect of the company’s consideration of the setting up of an Employer’s Benefit Trust (para 2 Board minutes of 28/2/14 refers). 145. Item 2 reads as follows: Documents supporting the consideration of reward and decision to incentivise David Graham. 146. Item 5 reads as follows: All documents provided by Qubic Tax Ltd in which the tax planning arrangements where reward using an Employers Benefit Trust and/or purchase agreement of gold bullion is mentioned (para 3 Board minutes 12/3/14 refers). 147. Item 16 reads as follows: Copies of loan agreements for each of the following loans - Loan 1, Loan 2, Loan 3, Loan 4 and Loan 5. 148. Items 17-22 read as follows: 17. Who was considered for incentivisation and reward? Please state names of those considered and their role in the company. 18. Of those considered, why was David Graham the only person to receive a reward by arrangements under which he received assets in the form of a title to gold bullion? 19. How did the company incentivise other employees? 20. How did the company satisfy itself of the independence of the Trustees, given David Graham held the role of Protector of the Trust? 21. State how the scheme developed in house differs from the approach advised by Qubic Tax Ltd (par 3 Board minutes 12/3/14 refers). 22. Was the company provided with a scheme reference number by Qubic Tax Ltd? 149. Officer Shakles accepted in her evidence that motivating and incentivising employees would be wholly and exclusively for the purposes of trade. However, the HMRC position is that i f the purpose of the scheme was not to incentivise employees but to avoid tax, then it would not be wholly and exclusively for the purposes of trade. The HMRC contention is that it is therefore necessary to determine the circumstances around the creation and operation of the Trust. HMRC acknowledge that they have already received a considerable amount of information about the Trust, and it seems that they know the mechanics of its operation. As Officer Shakles put it, HMRC knew what had happened, but were requesting the information and documents in order to find out why and how it had happened. It is also said more generally that the Trust involves complex arrangements, and that in order to establish what the tax implications of the arrangements are, it is necessary for HMRC to have sight of all relevant documents and information. 150. HMRC acknowledge that they do not know exactly what documents exist, and that where documents do not exist, it is open to Assethound to confirm that this is the case in its response to the information notice. However, HMRC state that some of the requested documents must exist as they have been referred to in other documents already provided by Assethound. 151. Assethound have not sought to argue that the requested information is irrelevant to checking its tax position. Rather, Assethound argues that the request information is unnecessary for checking its tax position, since enough information has already been provided to HMRC for HMRC to be in a position to take a view on the matter. 152. The Tribunal refers to what is said in paragraph 124 above. The Tribunal is satisfied that the information requested in the information notice is relevant to the tax position of Assethound in the period in question, given especially that HMRC were in the course of an enquiry into the company’s tax return. Absent any countervailing consideration, the Tribunal would consider HMRC to have established that the requested information and documents are reasonably required for the purpose of checking Assethound’s tax position. The Tribunal is not persuaded by anything presented by Assethound that the information and documents requested in the disputed items, if provided to HMRC, would make no difference to the assessment that HMRC would otherwise have made on the basis of the information that it currently has. For that reason, the Tribunal is satisfied that the requested information and documents are “reasonably required” to check Assethound’s tax position. 153. However, the Tribunal does note that the obligation to comply with the information notice is subject to the operation of paragraph 25 of Schedule 36. By virtue of paragraph 25, Assethound will not be required, in its response to the information notice, to provide information about relevant communications (as to which see paragraphs 133-136 above) or documents which are its tax adviser’s property and consist of relevant communications. For instance, item 5 of the information notice seeks “ All documents provided by Qubic Tax Ltd in which the tax planning arrangements where reward using an Employers Benefit Trust and/or purchase agreement of gold bullion is mentioned ”. It is quite possible that some or all of the documents falling within this category are subject to paragraph 25. So, possibly, may other documents referred to in other disputed items. 154. However, there is no need for the Tribunal to vary the information notice to give effect to paragraph 25. That provision does not restrict the powers of HMRC when issuing information notices. Rather, it limits the obligations of the addressee of the information notice when responding to it. HMRC can ask in an information notice for documents to which paragraph 25 applies, or can ask for a generic category of documents which might in practice in a given case include documents to which paragraph 25 applies. However, by virtue of paragraph 25, the addressee of the information notice is not required to provide them. Because of this, the scope of application of paragraph 25 is more likely to arise in an appeal against a penalty for failing to comply with an information notice, than in an appeal against the information notice itself. In the case of Assethound, no penalty for failing to comply with the information notice has been imposed. 155. Given that HMRC are conducting an enquiry into the tax return of Assethound, the Tribunal is not persuaded by the argument that the requested information is sought for an impermissible purpose of checking the tax position of a third party (such as Mr Graham) rather than the tax position of Assethound itself. The Tribunal is satisfied that the operation of the Trust, if fully understood by HMRC, may affect the tax position of Assethound itself. 156. Finally, Assethound argues that it has received a determination under regulation 80 of the PAYE Regulations in respect of the 2014-15 and 2015-16 tax years, against which it has appealed. It argues that these PAYE determinations are issued in relation to precisely the same matters as lie at the heart of the information requests under appeal, and that once a formal appealable decision has been reached concerning the arrangements entered into by Assethound concerning the remuneration of Mr Graham, the documents requested in the Schedule 36 notice are no longer reasonably required . Assethound further argues that because of the pending PAYE appeal, paragraph 19(1) of Schedule 36 applies. 157. The Tribunal rejects the argument that paragraph 19(1) of Schedule 36 applies. That provision states that an information notice does not require a person to produce “information that relates to the conduct of a pending appeal relating to tax or any part of a document containing such information”. That provision is expressed to relate to “information” (rather than documents), and is expressed to relate to information which relates to “the conduct of” any pending appeal. To the extent that this provision relates to documents, it would apply only to documents which in their wording refer to the conduct of a pending appeal. It does not relate to documents which merely refer to subject matters which may be matters in issue in a pending appeal. Indeed, even a document which may have been produced in evidence in a pending appeal would not for that reason alone fall within the terms of paragraph 19(1)(a), if the document does not itself refer to the conduct of the pending appeal. 158. The Tribunal is not satisfied on the material before it that any of the documents referred to in the challenged items in the information notice refer to the conduct of the pending PAYE appeal. It is not satisfied that any of the requested information or documents falls within paragraph 19(1)(a). 159. However, even if they did, the observations in paragraph 154 above would apply. Paragraph 19(1)(a) does not restrict or limit the power of HMRC to issue information notices, but merely restricts the obligations of addressees in relation to compliance with information notices. Even if there might potentially be documents falling within the challenged items to which paragraph 19(1)(a), there is no need to vary the information notices themselves to reflect that fact that Assethound would not be required to produce them. 160. The Tribunal is also not persuaded that the pending PAYE appeal would render the information notice futile, or would render futile any HMRC action that might be taken in the light of information or documents provided pursuant to the information notice. An appeal under regulation 80 of the PAYE Regulations does not deal with exactly the same issues as a closure notice issued at the end of an enquiry into Assethound’s tax return. The former deals with Assethound’s obligations to make payments to HMRC pursuant to the PAYE Regulations. The latter deals with Assethound’s substantive tax liability for the period in question. On the material before it, and the legal arguments presented to it the Tribunal is not persuaded that a decision on the PAYE appeal would preclude HMRC from issuing a closure notice reflecting information provided pursuant to the information notice, or from enforcing that closure notice. Conclusion 161. The appeals of Qubic Tax and Orchard against the penalties dated 6 May 2016 and 29 June 2016 is allowed, and those penalties are set aside. 162. All of the appeals are otherwise dismissed. Right to apply for permission to appeal 163. 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. DR CHRISTOPHER STAKER TRIBUNAL JUDGE RELEASE DATE: 11 MAY 2020 APPENDIX A Relevant provisions of Schedule 23 to the Finance Act 2011 1. Section 86(1) of the Finance Act 2011 provides :(1) Schedule 23 contains provision for officers of Revenue and Customs to obtain data from data-holders . 2. Paragraph 1 of Schedule 23 relevantly provides: (1) An officer of Revenue and Customs may by notice in writing require a relevant data-holder to provide relevant data.(2) Part 2 of this Schedule sets out who is a relevant data-holder.(3) In relation to a relevant data-holder, “ relevant data ” means data of a kind specified for that type of data-holder in regulations made by the Treasury.(4) The data that a relevant data-holder may be required to provide— (a) may be general data or data relating to particular persons or matters, and (b) may include personal data (such as names and addresses of individuals).(5) A notice under this paragraph is referred to as a data-holder notice. 3. Paragraph 2 of Schedule 23 relevantly provides: (1) The power in paragraph 1(1) is exercisable to assist with the efficient and effective discharge of HMRC’s tax functions— (a) whether a particular function or more generally, and (b) whether involving a particular taxpayer or taxpayers generally.. 4. Paragraph 3 of Schedule 23 provides: (1) A data-holder notice must specify the relevant data to be provided. (2) Relevant data may not be specified in a data-holder notice unless an officer of Revenue and Customs has reason to believe that the data could have a bearing on chargeable or other periods ending on or after the applicable day. (3) The applicable day is the first day of the period of 4 years ending with the day on which the notice is given. 5. Paragraph 4(1) of Schedule 23 provides: (1) Relevant data specified in a data-holder notice must be provided by such means and in such form as is reasonably specified in the notice. 6. Paragraph 9 of Schedule 23 provides: (1) Each of the following is a relevant data-holder— (a) an employer, (b) a person who is concerned in making payments to or in respect of another person’s employees with respect to their employment with that other person, (c) an approved agent within the meaning of section 714 of ITEPA 2003 (which relates to payroll giving), and (d) a person who carries on a business in connection with which relevant payments are or are likely to be made. (2) Relevant payments are— (a) payments for or in connection with services provided by persons who are not employed in the business, or (b) periodical or lump sum payments in respect of any copyright, public lending right, right in a registered design or design right. (3) Payments are taken to be made in connection with a business if they are made— (a) in the course of carrying on the business or a part of it, or (b) in connection with the formation, acquisition, development or disposal of the business or a part of it. (4) Sub-paragraph (1)(d) applies to the carrying on of any other kind of activity as it applies to the carrying on of a business, but only if the activity is being carried on by a body of persons (and references in sub-paragraphs (2) and (3) to the business are to be read accordingly). (5) A reference in this paragraph to the making of payments includes— (a) the provision of benefits, and (b) the giving of any other valuable consideration. 7. Paragraph 28 of Schedule 23 provides. (1) The data-holder may appeal against a data-holder notice, or any requirement in such a notice, on any of the following grounds— (a) it is unduly onerous to comply with the notice or requirement, (b) the data-holder is not a relevant data-holder, or (c) data specified in the notice are not relevant data. (2) Sub-paragraph (1)(a) does not apply to a requirement to provide data that form part of the data-holder’s statutory records. (3) Sub-paragraph (1) does not apply if the tribunal approved the giving of the notice in accordance with paragraph 5. 8. Paragraph 29 of Schedule 23 relevantly provides. (3) On an appeal that is notified to the tribunal, the tribunal may confirm, vary or set aside the data-holder notice or a requirement in it. (4) If the tribunal confirms or varies the notice or a requirement in it, the dataholder must comply with the notice or requirement— (a) within such period as is specified by the tribunal, or (b) if the tribunal does not specify a period, within such period as is reasonably specified in writing by an officer of Revenue and Customs following the tribunal’s decision. (5) A decision by the tribunal under this Part is final (despite the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007).(6) Subject to this paragraph, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under paragraph 28 as they have effect in relation to an appeal against an assessment to income tax. 9. Paragraph 46 of Schedule 23 provides. (1) For the purposes of this Schedule data form part of a data-holder’s statutory records if they are data that the data-holder is required to keep and preserve under or by virtue of any enactment relating to tax. (2) Data cease to form part of a data-holder’s statutory records when the period for which the data are required to be preserved under or by virtue of that enactment has expired. 11. Regulation 3(5) of the 2012 Regulations states: (5) For the purposes of paragraph 9(1)(d) and, where relevant, paragraph 9(4) — (a) the relevant data are information relating to relevant payments made in connection with a business, or a part of a business; (b) particulars of the following payments are not relevant data— (i) payments from which income tax is deductible; and (ii) payments made to any one person where the total of those payments, particulars of which would otherwise fall to be provided, does not exceed £500. APPENDIX B Relevant provisions of Schedule 36 to the Finance Act 2008 1. Paragraph 1 of Schedule 36 provides: (1) An officer of Revenue and Customs may by notice in writing require a person (“the taxpayer”)– (a) to provide information, or (b) to produce a document, if the information or document is reasonably required by the officer for the purpose of checking the taxpayer’s tax position. (2) In this Schedule, “ taxpayer notice ” means a notice under this paragraph. 2. Paragraph 18 of Schedule 36 provides: The information notice only requires a person to produce a document if it is in the person’s possession or power. 3. Paragraph 19 of Schedule 36 relevantly provides: (1) An information notice does not require a person to provide or produce– (a) information that relates to the conduct of a pending appeal relating to tax or any part of a document containing such information, … 4. Paragraph 21 of Schedule 36 relevantly provides: (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. (2) Where a person has made a tax return in respect of a chargeable period under paragraph 3 of Schedule 18 to FA 1998 (company tax returns), a taxpayer notice may not be given for the purpose of checking that person’s corporation 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. 5. Paragraph 23 of Schedule 36 provides: (1) An information notice does not require a person– (a) to provide privileged information, or (b) to produce any part of a document that is privileged. (2) For the purpose of this Schedule, information or a document is privileged if it is information or a document in respect of which a claim to legal professional privilege, or (in Scotland) to confidentiality of communications as between client and professional legal adviser, could be maintained in legal proceedings. (3) The Commissioners may by regulations make provision for the resolution by the tribunal of disputes as to whether any information or document is privileged. (4) The regulations may, in particular, make provision as to– (a) the custody of a document while its status is being decided, … 6. Paragraph 25 of Schedule 36 provides: (1) An information notice does not require a tax adviser– (a) to provide information about relevant communications, or (b) to produce documents which are the tax adviser’s property and consist of relevant communications. (2) Sub-paragraph (1) has effect subject to paragraph 26. (3) In this paragraph– “ relevant communications ” means communications between the tax adviser and– (a) a person in relation to whose tax affairs he has been appointed, or (b) any other tax adviser of such a person, the purpose of which is the giving or obtaining of advice about any of those tax affairs, and “ tax adviser ” means a person appointed to give advice about the tax affairs of another person (whether appointed directly by that person or by another tax adviser of that person). 7. Paragraph 29 of Schedule 36 relevantly provides: (1) Where a taxpayer is given a taxpayer notice, the taxpayer may appeal against the notice or any requirement in the notice. (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. 8. Paragraph 39 of Schedule 36 relevantly provides: (1) This paragraph applies to a person who– (a) fails to comply with an information notice, … (2) The person is liable to a penalty of £300. (3) The reference in this paragraph to a person who fails to comply with an information notice includes a person who conceals, destroys or otherwise disposes of, or arranges for the concealment, destruction or disposal of, a document in breach of paragraph 42 or 43. 9. Paragraph 40 of Schedule 36 relevantly provides: (1) This paragraph applies if the failure or obstruction mentioned in paragraph 39(1) continues after the date on which a penalty is imposed under that paragraph in respect of the failure or obstruction. (2) The person is liable to a further penalty or penalties not exceeding £60 for each subsequent day on which the failure or obstruction continues. 10. Paragraph 45 of Schedule 36 relevantly provides: (1) Liability to a penalty under paragraph 39 or 40 does not arise if the person satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that there is a reasonable excuse for the failure or the obstruction of an officer of Revenue and Customs. 11. Paragraph 62 of Schedule 36 relevantly provides: (1) For the purposes of this Schedule, information or a document forms part of a person’s statutory records if it is information or a document which the person is required to keep and preserve under or by virtue of– (a) the Taxes Acts, or (b any other enactment relating to a tax, subject to the following provisions of this paragraph. (2) To the extent that any information or document that is required to be kept and preserved under or by virtue of the Taxes Acts– (a) does not relate to the carrying on of a business, and (b) is not also required to be kept or preserved under or by virtue of [ any other enactment relating to a tax, it only forms part of a person's statutory records to the extent that the chargeable period or periods to which it relates has or have ended. (3) Information and documents cease to form part of a person’s statutory records when the period for which they are required to be preserved by the enactments mentioned in sub-paragraph (1) has expired. APPENDIX C Background to the appeals and grounds of appeal Appeal TC/2017/02089 (Qubic Tax) Background 1. In a letter dated 1 March 2016, HMRC advised Qubic Tax that HMRC would in approximately 30 days be sending Qubic Tax a notice under paragraph 1 of Schedule 23 for the 2012-13, 2013-14 and 2014-15 tax years. The letter requested Qubic Tax to complete and return an enclosed questionnaire to help HMRC ensure that the return was accurate. 2. On 24 March 2016, Qubic Tax’s financial controller, Mr K Forrest, returned the completed questionnaire as requested. At question 6 on the questionnaire form, Mr Forrest answered “yes” to the question: “Do you make the following type(s) of payments? All payments, commissions, loans, grants, fees, benefits and valuable consideration of whatever description made by you, directly or otherwise in respect of services, including the introduction of clients or potential clients.” 3. On 22 April 2016, HMRC sent to Qubic Tax three data holder notices in respect of tax years 2012-13, 2013-14 and 2014-15 respectively. 4. On 18 July 2016, Qubic Tax appealed against the three notices. 5. In a letter dated 24 August 2016, HMRC accepted Qubic Tax’s late appeal against the three Schedule 23 notices. The letter accepted that the notices were drawn too widely and advised that the notices were withdrawn. The letter went on to advise that the notices for 2013-14 and 2014-15 would be reissued with amended wording, and set out the wording that the re-issued notices would contain. HMRC state that the 2012-13 notice was not re-issued because it was out of time. 6. On 31 August 2016, HMRC issued two Schedule 23 notices, for tax years 2013-14 and 2014-15 respectively. These are the notices subject to this appeal. 7. On 3 October 2016, Qubic Tax appealed against the two notices. 8. In a letter dated 8 November 2016, HMRC set out its view of the matter in response to the Qubic Tax’s appeal, concluding that the notices were valid and should be complied with. 9. In a letter dated 5 December 2016, Qubic Tax requested a review. 10. Following further correspondence between the parties, on 3 February 2017 the HMRC review conclusion letter concluded that the HMRC decision summarised in the 8 November 2016 HMRC letter was correct and should be upheld. 11. Qubic Tax subsequently appealed to the Tribunal. Qubic Tax’s grounds of appeal 12. The grounds of appeal as set out in the notice of appeal are (1) that it is inherently unclear which document is the notice and which document is a covering or accompanying document, as each document suggests that the other is the notice, (2) that the wording of the purported notice is ambiguous, and the officer issuing the review decision had no statutory power to revise the wording of the notice, and (3) that the revised wording will potentially require Qubic Tax to provide information that has a bearing on chargeable periods before the date 4 years before the notice was given. Appeal TC/2017/07620 (Qubic Tax) Background 13. Earlier background facts are set out in paragraphs 1-12 of this Appendix above. 14. On 31 May 2017, HMRC sent to Qubic Tax two data holder notices in respect of tax years 2015-16, and 2016-17 respectively. These are the notices subject to this appeal. 15. On 29 June 2017, Qubic Tax appealed against the two notices. 16. In a letter dated 3 July 2017, HMRC set out its view of the matter in response to the appeal, concluding that the notices were valid and should be complied with. 17. In a letter dated 28 July 2017, Qubic Tax requested a review. 18. An HMRC review conclusion letter dated 8 September 2017 concluded that the notices were legally valid and should be upheld. 19. Qubic Tax subsequently appealed to the Tribunal. Qubic Tax ’s grounds of appeal 20. The grounds of appeal as set out in the notice of appeal are (1) that it would be unduly onerous to comply with the notices, particularly given the ambit and ambiguity of the requests and the fact that HMRC are not concerned with Qubic Tax’s tax affairs, (2) that some or all of the data requested is not relevant data and HMRC’s request is far wider than permissible, and (3) that the notice is invalid due to its ambiguity, content and stated purpose, and it is unclear which document is the notice and which is the covering or accompanying document. Appeal TC/2017/01974 (Qubic Trustees) Background 21. On 16 February 2016, HMRC opened enquiries into Qubic Trustees’s tax returns for the accounting periods ending 31 March 2014 and 30 September 2014. 22. On 30 March 2016, HMRC issued to Qubic Trustees two information notices in respect of the periods ending 31 March 2014 and 30 September 2014 respectively . 23. On 11 April 2016, Qubic Trustees appealed against the information notices. 24. On 6 May 2016, HMRC issued to Qubic Trustees an initial penalty of £300 for failure to comply with the information notice. 25. Following further correspondence between the parties, on 29 June 2016, HMRC issued to Qubic Trustees daily penalties totalling £1,200 (£25 per day for 48 days) for failure to comply with the information notice. 26. In a letter dated 18 July 2016, Qubic Trustees expressed the view that as the information notices were under appeal, the penalties were premature and should be withdrawn, or alternatively, that the penalties should be considered to be under appeal as well. 27. In a decision dated 25 August 2016, HMRC found that there was no appeal against the information notices insofar as it related to statutory records, that the information notices were otherwise not unduly onerous, and that the penalties had been correctly charged. The letter stated that the penalties had been informally stood over pending the appeal but that daily penalties continued to accrue. 28. On 11 October 2016, Qubic Trustees requested a review of that decision. 29. Following further representations made by Qubic Trustees, in a review conclusion letter dated 27 January 2017, HMRC concluded that the 25 August 2016 decision was correct and should be upheld. 30. Qubic Trustees subsequently filed notices of appeal with the Tribunal, appealing against the information notices and penalties. The Appellant’s grounds of appeal 31. The grounds of appeal as set out in the notice of appeal against the information notices are (1) that the information still being sought does not constitute statutory records or at least not all of it does, (2) that the requests are broadly drafted and inherently unclear and unenforceable, (3) that the information still being sought was not reasonably required for checking the company’s tax position for the accounting period ended 31 March 2014 and/or 30 September 2014 and provision of the information would be onerous for the company, and (4) that items 1 and 5 of the information sought are exempt under paragraph 25 of Schedule 36. 32. The grounds of appeal as set out in the notices of appeal against the penalties are, in addition to the grounds of appeal relating to the information notices themselves (1) that the company has endeavoured to cooperate to provide the relevant information to HMRC who have not explained the extent to which the requests have not been met such that it is unclear whether the information sought is actually in the company’s possession or power, (2) that a taxpayer has a reasonable excuse for non-compliance with an information notice while there is a pending appeal, and (3) that the rate of daily penalties of £25 per day is excessive. Appeal TC/2017/01995 (Orchard) Background 33. On 3 February 2016, HMRC opened enquiries into Orchard’s tax returns for the accounting period ending 30 September 2014, and in a letter of that date requested Orchard to provide certain documents and information. 34. On 30 March 2016, HMRC issued to Orchard an information notice in respect of the period ending 30 September 2014 . 35. On 31 March 2016, Orchard responded to the 3 February 2016 HMRC letter. 36. On 11 April 2016, Orchard appealed against the information notice. 37. On 6 May 2016, HMRC issued to Orchard an initial penalty of £300 for failure to comply with the information notice. 38. Following further correspondence between the parties, on 29 June 2016 HMRC issued to Orchard daily penalties totalling £1,300 (£25 per day for 52 days) for failure to comply with the information notice. 39. In a letter dated 18 July 2016, Orchard appealed against both penalty notices. 40. In a decision dated 25 August 2016, HMRC found that there was no appeal against the information notices insofar as it related to statutory records, and that the penalties had been correctly charged. 41. In a letter dated 11 October 2016, Orchard requested a review of that decision. 42. Following further correspondence between the parties, in a review conclusion letter dated 27 January 2017, HMRC concluded that the 25 August 2016 decision was correct and should be upheld. 43. Orchard subsequently filed notices of appeal with the Tribunal, appealing against the information notices and penalties. The Appellant’s grounds of appeal 44. The grounds of appeal as set out in the notice of appeal against the information notices are (1) that the information still being sought does not constitute statutory records or at least not all of it does, (2) that the requests are broadly drafted and inherently unclear and unenforceable, and (3) that the information still being sought was not reasonably required for checking the company’s tax position for the accounting period ended 30 September 2014 and provision of the information would be onerous for the company. 45. The grounds of appeal as set out in the notices of appeal against the penalties are, in addition to the grounds of appeal relating to the information notices themselves (1) that the company has endeavoured to cooperate to provide the relevant information to HMRC who have not explained the extent to which the requests have not been met such that it is unclear whether the information sought is actually in the company’s possession or power, (2) that a taxpayer had a reasonable excuse for non-compliance with an information notice while there is a pending appeal, and (3) the rate of daily penalties of £25 per day is excessive. Appeal TC/2017/02275 (Assethound) Background 46. On 20 November 2015, HMRC opened enquiries into Assethound’s tax returns for the accounting periods ended 8 May 2014 and 30 September 2014, and in a letter of that date requested Assethound to provide certain documents and information. 47. Following communications between the parties, on 8 February 2016 HMRC issued to Assethound an information notice stated to be for the return periods covering 8 May 2014 to 30 September 2014 . 48. On 7 March 2016, Assethound responded to the 20 November 2015 HMRC letter. 49. In a letter dated 5 April 2016, HMRC made an informal request for further documents and information. 50. Following further communications between the parties, on 27 May 2016, HMRC issued to Assethound an information notice stated to be for the accounting period ended 30 September 2014. This is the information notice to which this appeal relates. 51. On 22 June 2016, Assethound responded to the information notice. 52. On 22 July 2016, HMRC issued to Assethound an initial penalty of £300 for failure to comply with the information notice. 53. On 17 August 2016, Assethound appealed against the information notice and the penalty assessment. 54. In a decision dated 2 November 2016, HMRC found that the 22 June 2016 letter did not constitute a full response to the information notice, and that the penalty had been correctly charged. 55. In a letter dated 9 December 2016, Assethound requested a review of that decision. 56. Following further correspondence between the parties, in a review conclusion letter dated 9 February 2017, HMRC concluded that the information notice was correct and should be upheld, but that the penalty notice should be cancelled. 57. On 10 March 2017 , Assethound filed a notice of appeal with the Tribunal, appealing against the information notice. The Appellant’s grounds of appeal 58. The grounds of appeal as set out in the notice of appeal against the information notice are that specified items in the request (1) are too broadly drafted, (2) concern the company’s tax position for an earlier tax period, (3) do not reasonably restrict itself to matters relevant to Assethound, (4) are unclear in scope and therefore unenforceable, and/or (5) are unclear how they have anything to do with the company’s tax position for any period at all. APPENDIX D The witness evidence Evidence of David Graham (relating to Qubic Tax) 1. The witness statement of David Graham in appeal no TC/2017/02089 states amongst other matters as follows. 2. Mr Graham is a chartered accountant and a member of the Institute of Chartered Accountants for England and Wales (“ICAEW”). He is the sole director of Qubic Tax Ltd, which was first incorporated in January 2008, and which is an ICAEW member firm of chartered accountants specialising in the provision of tax advice. He found the correspondence from HMRC dated 31 August 2016 to be ambiguous. For each tax year there were two documents, each referring to the other as the notice, so that it was unclear which of the documents constituted the formal notice. He also found the language of the documents to be unclear. If Qubic Tax is obliged to comply with HMRC’s documents it will do so, but it is necessary to know what falls within or outside the scope of the requests. Otherwise, considerable time may be spent unnecessarily by officers or employees of Qubic Tax trying to ascertain the ambit of the request and compiling documents which are not required by HMRC, which is also why the requests place an unduly onerous burden on Qubic Tax. 3. Mr Graham made a further witness statement in appeal no TC/2017/07620. Evidence of David Graham (relating to Qubic Trustees) 4. The witness statement of David Graham states amongst other matters as follows. 5. Mr Graham is one of two directors of Qubic Trustees, which was first incorporated in 2009 and which is an ICAEW member firm of chartered accountants specialising in the provision of trustee services. Mr Graham considers that the information notice issued to Qubic Trustees is ambiguous. In item 2, for instance, it is unclear whether the request includes accounts in respect of which the company acts as trustee. The notice will require time to be spent searching for documents that HMRC do not reasonably need, which creates an unnecessary and onerous administrative burden. In relation to item 1 in the notice, there are approximately 600 sales invoices listed in the analysis of turnover annex to Qubic Trustees’ letter dated 31 March 2016 which also present an administrative burden to compile. Qubic Trustees have asked HMRC without reply what its specific concerns are in relation to the company’s tax return. The notice asks for information which Mr Graham considers is not relevant and therefore would create an unnecessary administrative cost. Evidence of David Graham (relating to Orchard Street) 6. The witness statement of David Graham states amongst other matters as follows. 7. Mr Graham is the sole director of Orchard Street, which was incorporated in 2009, and which at material times acted as agent for two separate client principals, for the purpose of obtaining the supply of management services. The ambit of the requests set out in items 5 and 6 of the information notice are very wide and the full extent of this information is not reasonably needed for checking the company’s tax position. It is difficult to identify clearly what HMRC require, which would result in an unnecessary and onerous administrative burden. Evidence of David Graham (relating to Assethound) 8. The witness statement of David Graham states amongst other matters as follows. 9. Mr Graham is the sole director of Assethound, which was incorporated in 2013, and which at material times assisted clients with the purchase of gold bullion on credit terms. Assethound will comply with any unsatisfied obligations identified by the Tribunal. Assethound sought to cooperate with HMRC’s information notices, and Mr Graham considers that the documents provided were sufficient for HMRC to check the company’s tax return for the period in question. Evidence of HMRC Officer Clark (relating to Qubic Tax) 10. The witness statement of Officer Clark states amongst other matters as follows. 11. Officer Clark is an “intervention lead” for the “Promoter Channel” which is part of HMRC’s Counter-Avoidance Directorate. He was the intervention lead when the data-holder notices under appeal were issued. Qubic Tax was the subject of an intervention by the Promoter Channel because it is a promoter of tax avoidance schemes. Promoter Channel colleagues were aware that promoters of tax avoidance schemes often market their products via a network of introducers or intermediaries and that they pay for introductions. A project was therefore started to seek details of such payments from promoters in order to check that the introducers included such payments in their tax returns. A list containing 48 promoters was drawn up, which included Qubic Tax. 12. It is standard HMRC practice to give advance notice of data-holder notices the first time that they are issued, and this was done for all the promoters on this list, including Qubic Tax. The financial controller of Qubic Tax, Mr Kit Forrest, responded to the early warning letter from HMRC, returning the completed questionnaire that had been sent with that letter. In this completed questionnaire, Mr Forrest answered “yes” to question 6 (see paragraph 2 of Appendix C above). Officer Clark took this to indicate that Qubic Tax made such payments, that it was a data holder within paragraph 9 of Schedule 23, that the “reason to believe” test in paragraph 3(2) of Schedule 23 was satisfied, and that Schedule 23 notices could be validly issued to require returns of such payments. 13. In examination in chief, Officer Clark said that he had left HMRC in 2018. 14. In cross-examination, Officer Clark said as follows. 15. He did not know why the Promoter Channel was called “Channel” and accepted that this “HMRC speak” might not be clear to external stakeholders. He thought it hard to say whether the questionnaire issued with the early warning letter gave the impression that a data-holder notice would not be issued if the response to the questionnaire indicated that it would not be appropriate. He did not design the questionnaire form so could not say if it was designed to give HMRC reason to issue a data-holder notice. Officer Clark did not send the early warning letter or questionnaire. Everyone to whom a data-holder notice is issued receives an early warning letter before a data holder notice is sent for the first time, as a matter of standard procedure. He did not know what would happen if a person responded to question 6 of the questionnaire by stating that they do not make payments of that kind, but presumably a data-holder notice would still be issued if HMRC had other reasons to do so. In this case, and more generally, the fact that a person answers “yes” to question 6 is a justification for continuing to send further data-holder notices indefinitely in the future. If someone stated in good faith that they did not make such payments and HMRC accepted that, HMRC would stop sending the notices. 16. HMRC had become aware that Qubic Tax were making payments to intermediaries who were introducing clients to them. He could not say whether Qubic Tax would have received a data holder notice regardless of how the questionnaire had been answered. Question 6 was worded in the present tense, so a positive answer to the question indicated that payments of the kind referred to were being made as at the date of answering the questionnaire. From such an answer HMRC would also assume it to be likely that such payments had been made in the past since otherwise the answer to the questionnaire would state so. That was the basis for asking for information going back 3 years. HMRC knew that Qubic Tax was an established business that had been in operation for a considerable period, and if they were making such payments at the time of the questionnaire, it was obvious that they did so earlier as well. Officer Clark accepted that it would have been better if the questionnaire had asked specifically if such payments had been made over the previous 3 years. 17. Question 6 was drawn in wide terms because there are many means by which such payments can be made, for instance by way of making loans that are never intended to be repaid. There are many means by which valuable consideration can be transferred. Officer Clark could not say whether there could be any company other than a dormant company that would be able to answer “no” to question 6, but agreed that it covered any payment made by any company including for instance a payment for fuel by a taxi service. Nevertheless, he considered that a positive response to that question justified issuing a data-holder notice. In the case of Qubic Tax, HMRC considered it likely that they were making payments of commissions, and that the questionnaire helped justify issuing the notice. 18. In cases like this commissions are usually paid to accountants and other professional advisers, who should include these amounts in their turnover. He was aware of one case in 2016 where the professional adviser had failed to do this, and there had been a significant settlement with HMRC. He could not say if this happened often. He accepted that the purpose of the checks was not to counter tax avoidance, but to counter evasion or careless error. When this was repeated to him for confirmation, he said that the purpose was to ascertain the facts. The sole purpose was to check compliance by accountants. Notices are issued to thousands of people, not because it is thought likely that people are evading tax but because one or two may be. Spreading the message that avoidance does not work was a collateral benefit. 19. The information obtained was to be fed into HMRC databases so that it would be available for risk assessments of accountants and financial advisers. 20. Officer Clark said that the original data holder notices were subsequently withdrawn on his decision, after taking advice. He was trying to assist Mr Graham to comply by taking on board his comments. The re-issued data holder notices were intended to be clearer and more precise. 21. When asked which pages of the documents sent to Qubic Tax on 31 August 2016 constituted the data holder notices and which pages were accompanying letters, he identified the notice as being a 2 page document which contained the title “Schedule” about half way down the first page. He said that the text underneath the heading “Schedule” was part of the notice. It was put to him that the first words under that heading stated “The enclosed notice requires you to send …”, and later in the document there is another reference to “the enclosed notice”, thereby necessarily suggesting that this document was not the notice. It was further put to him that while HMRC might have understood which part of the documentation constituted the notice, it would not have been clear to someone receiving the documentation. Officer Clark said that it was just necessary to read the documentation sensibly, and that its meaning was fairly obvious. 22. When asked, Officer Clark confirmed that if several payments had been made to a particular person over the course of a year, the notice only required the total amount paid to that person during the year to be returned. However, it was put to him that the notice stated “In respect of each payment I require …”, and that in the event of an inconsistency between the notice and the HMRC guidance, the recipient of the notice was required to comply with the terms of the notice itself. Officer Clark accepted that the notice would have been clearer if it had said “In respect of each payee I require …” 23. When asked what was meant by the expression “directly or otherwise”, Officer Clark said that he thought this covered the situation where value is transferred by making payment via a third party, but was not certain. When asked whether, in the event that payment was made to B as a nominee of C, it would be sufficient to report the payment to B, Officer Clark said that any answer would be speculative as he was not involved in the drafting of the notice. When asked what was meant by “period end date”, he said that he thought this meant the payer’s period end date but he could not be sure. When asked why the notice did not simply ask for the exact date of each payment, he said that it was because the notice required only the total of all payments made to a payee during a year. When asked what was meant by “year to which payment relates”, he said that this was explained in the guidance. He accepted that the notice could have been better worded, but considered that it was understandable. 24. Officer Clark confirmed that apart from the one case he had mentioned, he did not have personal knowledge of cases where commissions had been paid to professional advisers who had then failed to include these amounts in their turnover. 25. In re-examination, Officer Clark said that he felt based on conversations with colleagues that promoters with very large numbers of clients were very likely to have paid commissions. Evidence of HMRC Officer Shakles (relating to Qubic Trustees and Orchard) 26. The first witness statement of Officer Shakles states amongst other matters as follows. 27. Officer Shakles works in the HMRC Counter Avoidance Directorate. In September 2015 she was assigned to work as a caseworker on a Qubic Tax asset purchase avoidance scheme which had been registered under the Disclosure of Tax Avoidance Scheme (“DOTAS”). She was responsible for the individual corporation tax enquiries into the tax returns of Qubic Trustees and Orchard. 28. In relation to Qubic Trustees, HMRC consider that the outstanding items required by the information notices are statutory records, but HMRC in any event consider that the information requested is reasonably required for purposes of checking the tax position of Qubic Trustees. 29. In the case of Orchard, the outstanding documents that HMRC are seeking are business books and records from which the accounts for the period 1 October 2013 to 30 September 2014 were prepared, all company and non-company bank and building society and other account documents, and details of each debtor and debt. This is usual for such a check. The business books and records underpinning the tax return are statutory records in any event. These records are in any event reasonably required to check the overall tax position of the company. 30. In cross-examination, Officer Shakles said amongst other matters as follows. 31. She accepted that the wording of the information notice was standard wording that had been drafted by someone else, but she believed the wording to be correct in relation to this case. She decided what to ask for in the information notice on the basis that it was considered to be reasonably required, and excessive information was not asked for. When deciding what to ask for, the guidance was checked and the previous year’s return was looked at for a comparison, but the PAYE records were not looked at as this would not be usual before opening an enquiry. She had no input into the HMRC statement of case. 32. When asked whether the fact that Orchard had a pending appeal against the information notice had been taken into account when the £300 penalty had been threatened on 20 April 2016, Officer Shakles said that the requested items that had still not been provided were considered to be statutory records against which there was no right of appeal. Officer Shakles was not sure whether the 27 April 2016 letter from Orchard had been received before the £300 penalty was imposed, but considered that the penalty would have been appropriate in any event. 33. Officer Shakles did not accept that items 5 and 6 in the information notice issued to Orchard were “kitchen sink” requests. All underlying documents on which the returns were based were required. She had no idea what those records might be, and thought it reasonably obvious to the recipient what was required. The recipient was required to provide only those documents that actually existed; HMRC cannot know what documents and records the recipient has so requests have to be stated in broad and general terms. If an entire return is being checked, it is not inappropriate for HMRC to ask for documents relating to very small amounts. While HMRC is not confined to asking for information on a single occasion only, the first request asks for everything to avoid drip-feeding requests. 34. Officer Shakles accepted that Orchard had complied with all but 2 items in the information notice to HMRC’s satisfaction, that Orchard had been trying to engage with HMRC, and that Orchard’s letters to HMRC were not merely playing for time. On 27 July 2016, she informally postponed the penalties, and sought further advice from someone in a higher position at HMRC. 35. Officer Shakles was working on cases assigned to her and did not choose the cases. 36. In relation to Qubic Trustees, Officer Shakles insisted that all of the information requested had been required to check the return of that particular company, and denied that any of the information requested had been wanted in order to check the tax affairs of third parties. She adopted the same approach that she did for every enquiry. She accepted that it might be possible for an addressee of an information notice to provide primary documents with names of third parties redacted, although she had never seen this done. Evidence of HMRC Officer Millward (relating to Qubic Trustees and Orchard) 37. The first witness statement of Officer Millward states amongst other matters as follows. 38. Officer Millward had responsibility for providing technical leadership for the enquiries into the scheme and its users. He also took over from Officer Shakles responsibilities for the individual corporation tax enquiries into the tax returns of Qubic Trustees and Orchard. 39. In the case of Qubic Trustees, the outstanding documents that HMRC are seeking are sales invoices for the accounting period and an aged debtor analysis. In conducting a full corporation tax check, HMRC would expect to be able to see the company’s prime records. The request for these documents is normal for such an enquiry and these constitute part of the statutory records of the company. These records are in any event reasonably required to check the overall tax position of the company. Reviewing the sales and receipts of the company is a key starting point for this. An aged debt analysis of the debtor figure is required to understand the overall cash flow of the business. 40. In the case of Orchard Street, HMRC are conducting a full corporation tax check of its corporation tax return, and the documents requested are needed to understand how the figures in the return have been arrived at and to assess whether those figures are complete and correct. Business books and records are considered to be statutory records, and they are in any event reasonably required to check the tax position of the company. While the company has already provided an explanation of certain figures within the accounts and tax return, without sight of the primary records he cannot assess whether those explanations and the underlying tax figures are correct. He considered the quantum of the penalties to be reasonable in the circumstances. 41. In cross-examination, Officer Millward said amongst other matters as follows. 42. He accepted that a collaborative approach is better than issuing an information notice, if the taxpayer is willing to cooperate. However, he did not accept that the Appellants were collaborative in this case, and could not see why the Appellants were unwilling to provide the requested documents. He considered that the outstanding records were statutory records, and these had not been provided after 3 months. Evidence of HMRC Officer Shakles (in relation to Assethound) 43. The second witness statement of Officer Shakles states amongst other matters as follows. 44. Assethound disclosed in their accounts to accounting period ended 8 May 2014 and 30 September 2014 their use of an employee benefit trust scheme with a tax efficient structure that operated when the reward was conferred upon the employee. In that disclosure, the company stated that “this disclosure is made on the basis that HMRC may not agree this and so they can raise queries, should they wish to do so”. 45. HMRC understand that the scheme is stated to work as follows. Assethound set up an employee benefit trust with a small sum (often £1,000) plus a small contribution to the trust (say £5,000). When the company decides to reward an employee (usually a director) it invests a sum (say £95,000) in gold via a bullion house, and the trust also invests in gold with the £5,000. A tripartite agreement signed by the company, the employee and the trustee provides that title to the gold passes to the employee who agrees to pay the trust the value of the gold at a later date, usually in 10 years’ time. The employee is then free to sell the gold and receives the sale proceeds. The company claims a deduction for the fees associated with using the scheme and £100,000 contribution. 46. In cross-examination, Officer Shakles said amongst other matters as follows. 47. Officer Shakles accepted that motivating and incentivising employees would be wholly and exclusively for the purposes of trade, but that it was always necessary to look at what actually happened in a particular case . Records of earlier discussions might disclose the actual thought processes around what was done. If the purpose of the scheme was not to incentivise employees but to avoid tax, then it would not be wholly and exclusively for the purposes of trade. Officer Shakles was looking for information confirming what had happened, and shedding light on why it had happened. There were many contrived steps in the scheme and she needed to take a lot of advice from colleagues. She was at this stage simply trying to gather information about the scheme. She considered that her request in item 2 of the information notice was clear. 48. As to the request in item 5 of the information notice, she accepted that she knew what had happened, and that she was requesting the information in order to find out why and how it had happened . 49. As to the request in item 16 of the information notice, she said that she could not know how the information would be relevant to taxability or what the risk to tax might have been until she had seen the information. 50. As to the request in item 17 of the information notice, she said that behind all of the requests for information was the purpose of ascertaining whether the real purpose of what happened was to incentivise and reward the director, or whether it was to avoid tax. She accepted that the request did not indicate how far back in time she was looking, and that with hindsight the request could have been more specific. Evidence of HMRC Officer Millward (in relation to Assethound) 51. The second witness statement of Officer Millward states amongst other matters as follows. 52. Officer Millward took over responsibility for the corporation tax enquiries into Assethound from Officer Shakles at the beginning of 2016. 53. HMRC are investigating tax avoidance schemes, designed and marketed by Qubic Tax, that utilise transactions involving gold bullion to reward employees allegedly in a tax efficient manner. 54. HMRC understand that in general terms the scheme operates as follows. The company settles an onshore employee benefit trust with a small initial sum (often £1,000), then increases the capital value of the trust with a further payment (say £10,000). The company decides to reward an employee (usually a director) with a purchase of gold bullion though an independent bullion dealer (in this example, the value of the gold purchased is £90,000). The trustees of the trust also decide to purchase gold for the employee in the sum of £10,000 so that the total bullion purchased is £100,000. The value of the gold purchased with trust funds is taxed through the company payroll. The company, employee and trustees enter into a tripartite agreement whereby the beneficial title to the gold bullion passes to the employee and the employee agrees an obligation to pay the value of the bullion to the trust at a specified future point, usually 10 years from the agreement date. The employee then sells the bullion (usually on the same day that it is purchased and at the same price point) and receives the sales proceeds from the dealer. The company claims a corporation tax deduction for the £100,000 of gold bullion purchased and any scheme fees associated with those arrangements. The employee receives £100,000 gross with £95,000 not suffering the deduction of PAYE or NICs. 55. It is also HMRC’s understanding that Assethound is part of the scheme transactions for an undisclosed variant of this scheme, in which the gold bullion is sourced on credit. 56. Officer Millward agrees that it was reasonable to request the disputed items in the information notice. 57. In examination in chief, Officer Millward said amongst other matters as follows. The determination under regulation 80 of the PAYE Regulations was issued to protect the position after a new ground of appeal was added in this appeal, in order to protect the position. HMRC have not yet formed any view arising out of the corporation tax enquiry. 58. In cross-examination, Officer Millward said amongst other matters as follows. 59. Officer Millward understood from a conversation with a colleague that HMRC considered that it had enough information to issue the determination under regulation 80 of the PAYE Regulations. This was not just a mechanism to buy more time, although the fact that the time limit for issuing the determination was about to expire was a factor. He accepted that the amount of tax due is not affected by whether or not a DOTAS number is correctly cited on the return. He could not recall hearing anything in the evidence of Officer Shakles with which he disagreed. The HMRC caseworker has day to day contact with the individual taxpayer, and there may be a technical team with a technical lead for particular tax arrangements to which the caseworker can refer. All of the documents requested concerned tax arrangements entered into by Assethound. The arrangements enabled the director to be remunerated without paying tax or National Insurance, and the company could claim a corporation tax deduction for its contribution to the arrangement. 60. As to the request in item 1 of the information notice, he did not believe that the disclosure made by the company set out all of the steps of the scheme. It would have been remiss of him to make a decision denying the tax advantage of the scheme without first seeing all relevant information. Even if HMRC at the time had a lot of information about the implementation of the scheme in question, he did not want to close down the enquiry without fully exploring all information. He will not form a final view as to whether the scheme used by Assethound is the same scheme as that used by Qubic Tax until he has seen all documents.