Bryan v Revenue & Customs (Income Tax - enquiry into self-assessment return) [2020] UKFTT 239 (TC)

FTT-Tax
Bryan v Revenue & Customs (Income Tax - enquiry into self-assessment return)
[2020] UKFTT 239 (TC) · 2020-03-05
[25]I was satisfied that HMRC had failed to comply with the direction of the Tribunal requiring witness statements to be served on or before 10 October 2019. HMRC required an extension of time to serve the witness statement of Mr Sinclair if they were to be permitted to rely on his evidence. In deciding that they should be granted an extension of time and be permitted to rely on Mr Sinclair’s evidence I took the approach applicable in the civil courts. That was the approach the applicant invited me to take and it is the approach which was endorsed by the Supreme Court in BPP Holdings Ltd v HM Revenue & Customs [2017] UKSC 55 . I was not referred to any relevant authorities, but I approached this issue on the basis that it was akin to the position in relation to a debarring order which would prevent HMRC from adducing witness evidence. I took into account the Court of Appeal decision in Denton vTH White Ltd [2014] EWCA Civ 906 . The Upper Tribunal considered Denton in the context of applications to make a late appeal in Martland v HM Revenue & Customs [2018] UKUT 178 (TCC) and described the approach as follows:
“ 44. …it must be remembered that the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be. In considering that question, we consider the FTT can usefully follow the three-stage process set out in Denton : (1) Establish the length of the delay. If it was very short (which would, in the absence of unusual circumstances, equate to the breach being “neither serious nor significant”), then the FTT “is unlikely to need to spend much time on the second and third stages” - though this should not be taken to mean that applications can be granted for very short delays without even moving on to a consideration of those stages. (2) The reason (or reasons) why the default occurred should be established. (3) The FTT can then move onto its evaluation of “all the circumstances of the case”
. This will involve a balancing exercise which will essentially assess the merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission. 45. That balancing exercise should take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected.” 26. The delay by HMRC in serving the witness statement in this case was clearly serious and significant. 27. Mr Robison told me very frankly that the delay was caused by oversight on his part. He had misread the Tribunal’s letter dated 10 September 2019 and believed that the time for service of the witness statement was when the bundle was served, 14 days before the hearing. That is not a good reason, although I accept that it was the result of an innocent mistake. 28. I took these factors into account in conducting the balancing exercise I was required to perform in deciding whether to admit Mr Sinclair’s witness statement, together with the importance of litigation being conducted efficiently and the importance of respecting time limits. I also took into account the following further factors: (1) HMRC had at least indicated in their letter dated 3 October 2019 that they intended to rely on witness evidence, at that stage from Mr Green. (2) The witness statement appears to raise three new issues relied on by HMRC to justify the continued enquiry. Those three issues, identified above, were not mentioned in HMRC’s grounds of objection. Of those issues, one had not previously been canvassed in correspondence. This was Item 4, namely that the applicant himself had doubts about the treatment of client account balances adopted by his accountants in his accounts which raised concerns as to whether the accounts generally were correct. It seems to me that the other matters referred to by Mr Sinclair in his witness statement were already identified as issues in the enquiry correspondence. Work in progress and income recognition were part of the original aspect enquiry. (3) Much of the evidence relevant to this application is in the form of documentary evidence showing the progress of the enquiry, including HMRC’s requests for information and documents and the applicant’s responses thereto. That evidence is before me in any event if Mr Sinclair gave evidence and the applicant and the Tribunal would have an opportunity to question Mr Sinclair as to the conduct of the enquiry generally. (4) I was not satisfied that the applicant would suffer any real prejudice if permission was granted for HMRC to rely on the witness statement. The applicant said that he would have had longer to think about it and to take advice if it had been served on time. It seemed to me that the applicant had already had two weeks to consider how to address Mr Sinclair’s evidence and to obtain any advice he thought might be necessary. It is not a case where the applicant might be expected to adduce any evidence in response beyond the response he could give to the Tribunal during the hearing. (5) HMRC would suffer some prejudice if they were not entitled to adduce evidence as to why the enquiry should not be closed, although that would not be fatal to their case because the documentary evidence demonstrated the conduct of the enquiry and the matters outstanding. 29. Overall, in my view it was in the interests of fairness and justice that HMRC be permitted to adduce Mr Sinclair’s evidence as to why the enquiry should not be closed at this stage. 30. I turn now to consider the applicant’s substantive application. Section 28A TMA 1970 provides as follows: “(4) The taxpayer may apply to the tribunal for a direction requiring an officer of the Board to issue a partial or final closure notice within a specified period. (5) Any such application is to be subject to the relevant provisions of Part 5 of this Act (see, in particular, section 48(2)(b)). (6) The tribunal shall give the direction applied for unless satisfied that there are reasonable grounds for not issuing the partial or final closure notice within a specified period.” 31. It is well established that the burden is on HMRC in such applications to establish that there are reasonable grounds for not issuing a closure notice in relation to an enquiry. HMRC’s case is that they are still pursuing the enquiry and they require further information and documentation before they can be satisfied that the applicant’s return is correct, or that it is incorrect and assessments are required to correct the position. In particular, Mr Robison submitted that the information and documents which had been requested in the letter dated 18 April 2019 and repeated in the letter dated 14 June 2019 were still outstanding. 32. I was referred to what the FTT said in relation to the stage of an enquiry at which closure notices should be issued in Price v HM Revenue & Customs [2011] UKFTT 624 (TC) :[10]“10. …HMRC is entitled to know the full facts related to a person’s tax position so that they can make an informed decision whether and what to assess. It is clearly inappropriate and a waste of everybody’s time if HMRC are forced to make assessments without knowledge of the full facts. The statutory scheme is that HMRC are entitled to full disclosure of the relevant facts: this is why they have a right to issue (and seek the issue of) information notices seeking documents and information reasonably required for the purpose of checking a tax return (see Schedule 36 of Finance Act 2008) .” 33. Mr Robison submitted that in the present enquiry HMRC do not yet have all the information that they reasonably require to issue a closure notice. They should not be forced to make assessments without full knowledge of the facts. 34. The applicant challenged Mr Sinclair as to whether HMRC required a reconciliation of fee notes to the turnover declared, and the difference of £2,423 identified above. He suggested that the difference might be further income of £2,685 also shown in the accounts. I was not shown a copy of the accounts, but in any event this was the first time the applicant had put forward this as a possible explanation. In the enquiry correspondence the applicant had simply stated that he did not have a reconciliation. Whilst the difference seems small, without knowing how the difference arises, including the impact if any of how the applicant has recognised income in the accounts, it is impossible to draw any conclusion as to the significance of the difference. I am satisfied that HMRC are reasonably entitled to see copy bank statements in seeking to reconcile declared income to the fee notes before closing the enquiry. They are also entitled to see those bank statements in order to verify the figure in the accounts for trade debtors, including the extent to which disbursements are included in trade debtors. 35. The applicant also challenged Mr Sinclair on the circumstances in which the enquiry was widened to include the charge for depreciation and accountancy costs. The applicant considered that he had fairly answered the initial enquiry letter, including the request for information and documents. He explained that he viewed the subsequent widening of the enquiry as a second enquiry. 36. I am satisfied that there has only ever been one enquiry into the Return. That enquiry was commenced pursuant to section 9A TMA 1970, which provides as follows:
“(1) An officer of the Board may enquire into a return under section 8 or 8A of this Act if he gives notice of his intention to do so (“notice of enquiry”)— (a) to the person whose return it is (“the taxpayer”), (b) within the time allowed. (2) … (3) A return which has been the subject of one notice of enquiry may not be the subject of another, except one given in consequence of an amendment (or another amendment) of the return under section 9ZA of this Act.” 37. Once an enquiry has commenced, it only comes to an end when it is completed in accordance with section 28A TMA 1970. Completion of an enquiry requires HMRC to send a “final closure notice”
. An enquiry into a particular aspect of a return may also be completed by the issuing of a “partial closure notice”. Section 28A provides as follows: “(1) This section applies in relation to an enquiry under section 9A(1) of this Act. (1A) Any matter to which the enquiry relates is completed when an officer of Revenue and Customs informs the taxpayer by notice (a “partial closure notice”) that the officer has completed his enquiries into that matter. (1B) The enquiry is completed when an officer of Revenue and Customs informs the taxpayer by notice (a “final closure notice”) — (a) in a case where no partial closure notice has been given, that the officer has completed his enquiries, or (b) in a case where one or more partial closure notices have been given, that the officer has completed his remaining enquiries. (2) A partial or final closure notice must state the officer's conclusions and — (a) state that in the officer’s opinion no amendment of the return is required, or (b) make the amendments of the return required to give effect to his conclusions. (3) A partial or final closure notice takes effect when it is issued.” 38. There is no express provision for any form of limited enquiry into certain aspects of a return. An enquiry extends to the whole of a return, but in practice HMRC can limit the enquiry to specific aspects of a return, which is what happened in the present case. There is provision for an enquiry to be completed into specific aspects of a return, in which case a partial closure notice may be issued. That is not what happened here. HMRC have never issued any form of closure notice in relation to the enquiry. The applicant, as he is entitled to do, has applied for a final closure notice in relation to the enquiry and that is the application I must deal with. 39. It is instructive at this stage to consider what the position would be if HMRC issued an information notice for production of the information and documents they are still seeking pursuant to Schedule 36 FA 2008. HMRC say that some of the documents and information they require are statutory records. In particular, bank statements and fee notes to support opening and closing debtors. 40. Paragraph 1 Schedule 36 provides that an officer of HMRC may by notice in writing require a taxpayer to provide information or documents if reasonably required for the purpose of checking the taxpayer’s tax position. 41. Paragraph 29 Schedule 36 provides that a taxpayer can appeal against an information notice or any requirement in an information notice unless the requirement is to provide information or produce documents which form part of the taxpayer’s statutory records. 42. Paragraph 62 Schedule 36 provides that information or documents will form part of a taxpayer’s “statutory records” for present purposes if: “ …it is information or a document which the person is required to keep and preserve under or by virtue of - (a) the Taxes Act, or (b) any other enactment relating to tax. ” 43. The relevant enactment relating to income tax is section 12B TMA 1970 which in so far as relevant provides that any person who may be required by section 8 to make and deliver a self-assessment return shall keep and preserve “all such records as may be requisite for the purpose of enabling him to make and deliver a correct return…”. 44. I considered the position of statutory records in the case of Holmes & Knight v HM Revenue & Customs [2018] UKFTT 678 (TC) where I said as follows: “13. Once it is accepted that a document is a statutory record, Schedule 36 provides no right of appeal against an information notice requiring production of that document. The reason for that is clear. If a taxpayer is legally required by the Taxes Acts to keep and preserve a document, there is no reason for the taxpayer to resist production of the document to HMRC. In those circumstances HMRC are entitled to production of the document as a matter of course. They are not required to justify to a tribunal that the document is reasonably required in order to check the taxpayer’s tax position. The nature of the document, as one that is required to enable the taxpayer to make a correct and complete return, leads to what is in effect an irrebuttable presumption, at least as far as the tribunal is concerned, that it is reasonably required for the purposes of checking the taxpayer’s tax position.” 45. I remain of that view, although my reference to HMRC not being required to justify that a statutory record is reasonably required should not be taken in the present context as meaning that HMRC do not need to satisfy me that there are reasonable grounds for not issuing a closure notice. I must still be satisfied that HMRC have reasonable grounds not to issue a closure notice. 46. I am satisfied on the basis of the documentary evidence before me, and on the basis of Mr Sinclair’s evidence, that HMRC have not been provided with the information and documents requested by them in their letter dated 18 April 2019 and repeated in the letter dated 14 June 2019. Those documents, subject to a point I make below in relation to client account statements, are reasonably required to check the Return. In particular, HMRC are entitled to documents that might help to reconcile the turnover figure drawn up by the applicant’s previous accountants to the fees invoiced. That is why they require the applicant’s bank statements. The bank statements are statutory records and the applicant could not object to production of such records under Schedule 36. So too are fee notes which support the opening and closing trade debtors. HMRC are also reasonably entitled to enquire into the relationship between trade debtors and turnover in order to check the accuracy of the Return. 47. The applicant also submitted that the enquiry was oppressive and disproportionate. In particular, that it was wrong for HMRC to expand the enquiry to include depreciation and accountancy costs. HMRC have acknowledged that Mr Green ought to have expressly told the applicant that he was widening the enquiry and why that was the case. He did not do so until his letters dated 18 April 2019 and 14 June 2019. In my view Mr Green was reasonably entitled to extend the enquiry because he took a different view to Mr Siddique of certain matters. There may be cases where personnel changes at HMRC take place, and different officers take a different view to their predecessors as to an enquiry or aspects of an enquiry. Such changes are to some extent inevitable, and HMRC should ensure that proper respect is paid by officers to the approach of predecessors. Enquiries can present a significant burden to taxpayers and any disruption to an enquiry caused by personnel changed should be kept to a minimum. Enquiries must not be conducted in a way which is unreasonable, disproportionate or oppressive. In those cases, the Tribunal has power on applications such as this to direct a partial or final closure notice. However, the present case is not such a case. I do not consider it was unreasonable for Mr Green to extend the enquiry to cover depreciation and accountancy costs. 48. Overall, I am satisfied that there are reasonable grounds for HMRC not to issue a partial or final closure notice. I consider, subject to one reservation, that HMRC are reasonably entitled to see the information and documents they have requested before closing the enquiry. My only reservation is relation to client account bank statements. Without pre-judging any issue in that regard, the relevance and reasonableness of requiring client account bank statements and whether they are statutory records was not clear to me based on the submissions I heard. Depending on the approach taken by the parties, that question might have to be tested under the Schedule 36 procedure if HMRC issue an information notice requiring production of the statements, or on a subsequent application for a closure notice. Conclusion 49. For the reasons given above, the application is dismissed. Right to apply for permission to appeal 50. 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. JONATHAN CANNAN TRIBUNAL JUDGE RELEASE DATE: 22 MAY 2020

Cited in 2 later judgments