Mumtaz Hussain v The Commissioners for HMRC [2025] UKFTT 1598 (TC)

Neutral Citation: [2025 UKFTT 01598 (TC)Case No TC09727
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 26/09/2025Date Judgment date: 16 December 2025
By remote video hearing
Appeal reference: TC/2024/06133
Income Tax – Taxpayer Information Notice – Schedule 36 FA 2008 - whether the information sought is “reasonably required” by an HMRC officer for the purpose of checking the taxpayer’s position – whether an HMRC Officer “has reason to suspect that an amount that ought to have been assessed to tax for the chargeable period may not have been assessed –– effect on that determination of the issue of a discovery assessment under s29(1) TMA - appeal partly upheld
with further submissions on 10/10/2025, 24/10/2025 and 7/11/2025
Before
JUDGE VIMAL TILAKAPALA
Between
MUMTAZ HUSSAINAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentAlan Arenstein of WLH Taxation for AppellantSohail Khan, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]This is an appeal against a Taxpayer Information Notice (the “Notice”) issued on 10 August 2023 to Mumtaz Hussain (the “Appellant”) by HMRC pursuant to Para 1, Schedule 36, Finance Act 2008 (“Schedule 36” and “FA 08”).[2]The Notice required disclosure of multiple documents relating to, amongst other things, the Appellant’s acquisition and financing of certain UK properties and evidence relating to a finance agreement taken out by the Appellant.[3]The Notice was the subject of a statutory review which resulted in it being varied on 2 October 2024 to require fewer items relating to the properties to be disclosed and to amend the request relating to the finance agreement.[4]The items required have since the date of the hearing been further limited by HMRC following submissions made by the Appellant.

The law

[5]The relevant legislation is included as an appendix to this decision.[6]In summary, under Schedule 36, HMRC may issue a notice requiring a taxpayer to produce a document or provide information if that document or information is “reasonably required by an HMRC officer for the purpose of checking the taxpayer’s tax position”.[7]Where the taxpayer has submitted a tax return for the tax year in question, one of a number of further conditions must be satisfied. The relevant conditions in this appeal are that either(a) a notice of enquiry has been given in respect of the return and the enquiry has not been completed (“Condition A”), or(b) an HMRC officer has “reason to suspect that an amount which ought to have been assessed to tax has not been so assessed” (“Condition B”).[8]The issues in this appeal are(a) whether the documents and information sought by HMRC in the Notice are reasonably required for the purpose of checking the Appellant’s tax position for the years in question and(b) for the tax years other than the 2014/2015 tax year (which is the year in respect of which a notice of enquiry has been issued and the enquiry not completed) whether an HMRC officer has reason to suspect that an amount which ought to have been assessed to tax has not been so assessed.

Procedural Matters

[9]The hearing was conducted by video link with prior notice having been given on the gov.uk website with information given as to how members of the public or representatives of the media could attend. As such, the hearing was held in public.[10]We had a hearing bundle of 1148 pages. The bundle included a witness statement from HMRC Officer Paul McShane who also provided oral evidence. The Appellant observed the hearing but did not participate.[11]The Appellant’s grounds of appeal were brief and broad, stating simply that: (b). In the one tax year where there is an open enquiry under Section 9A Taxes Management Act 1970, HMRC are asking for documentation or information which is not reasonably required to check the tax position.”[12]At the hearing Mr Arenstein sought to introduce arguments based on three cases submitted to the Tribunal on 12 September 2025, two weeks prior to the hearing. On submission of the cases Mr Arenstein stated that he intended to raise arguments based on the cases but provided no details of those arguments.[13]At the hearing it was apparent that those arguments had not been articulated to HMRC. Mr Arenstein contended, however, that the arguments were covered in the Appellant’s grounds of appeal.[14]Given the brevity and breadth of the Appellant’s grounds of appeal it is difficult to say that the arguments it sought to raise were not in a very broad sense covered (as they ultimately derive from the basic proposition that the documents sought are either not reasonably required by HMRC to determine the Appellant’s tax position or that HMRC have insufficient grounds to suspect).[15]However, those arguments had certainly not been set out in the hearing documentation in any detail sufficient for HMRC to consider them fully prior to the hearing.[16]Taking into account the overriding objective (Rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009) which is to deal with cases fairly and justly, I asked Mr Arenstein to provide written submissions based on the three cases and for HMRC to have the ability to respond to those submissions with Mr Arenstein then having a short period in which to reply thereafter.[17]The additional submissions are addressed in the body of this judgment save for one relating to a discovery assessment issued by HMRC which I address as a preliminary matter.

The discovery assessment

[18]HMRC issued a discovery assessment (the “Discovery Assessment”) pursuant to s 29(1) of the Taxes Management Act 1970 (“TMA 1970”) to the Appellant on 27 March 2025 for the 2004/2005 tax year.[19]Although included in the hearing bundle, no reference was made to the Discovery Assessment by HMRC in its skeleton argument or statement of case nor by the Appellant in its notice of appeal.[20]At the hearing and in his additional submissions Mr Arenstein made the point that to issue a discovery assessment an HMRC officer must, under s 29(1) TMA 1970, have “discovered” that tax was underpaid in the relevant tax year. This is a higher standard of knowledge than that required for issuing a taxpayer information notice (“TIN”) under Schedule 36. This is because a discovery notice requires an HMRC officer to believe there to be an insufficiency of tax whereas a TIN requires an HMRC officer to merely have reason to suspect that there is an insufficiency.[21]He referred to the decision of this tribunal in David Hackmey v HMRC [2022] UKFTT 00160 (TC) and

Judge Aleksander’s comment at [37]:

“ … In the case of a discovery, the officer must believe there to be – rather than merely suspecting – an insufficiency of tax. “Belief” sets a higher bar than mere “suspicion” (see Jerome Anderson v HMRC [2018] UKUT 0159 (TCC) at [28] …)”
[22]Mr Arenstein pointed out that in the Discovery Assessment HMRC had purportedly identified a specific under declaration of income by the Appellant in his trading business for the tax year 2004/2005. To issue that assessment HMRC needed logically to have obtained additional information sufficient to support it. This questioned therefore its need to have the information requested in the Notice that was issued previously.[23]I agree with Mr Arenstein that this is a factor to be considered in determining whether the information sought in the Notice is reasonably necessary for the purpose of assessing the Appellant’s tax affairs for that year.[24]Mr Khan did not provide any material as to the nature of the additional information obtained by HMRC which supported the Discovery Assessment or how that information was obtained. However, in response to Mr Arenstein’s submission he chose to withdraw the request for documents “related directly to the tax year ended 2005”, stating on that basis that he did not intend to make any submissions on the impact of the Discovery Assessment on the Notice.[25]In accordance with that decision HMRC withdrew its request for Item 6 (a copy of the mortgage application and accompanying business accounts for the property at 39 Halfway Avenue) and Item 7 (a copy of the solicitor’s completion accounts for that acquisition) and they are therefore no longer the subject of this appeal.[26]The documents now requested by HMRC are limited to those considered below.

Background and facts

[27]The following is a summary of the background and the facts found: The Appellant’s business (1). The Appellant has since 2002 operated a business trading as “Instalink” which consists of travel booking and money transfer services to Pakistan (the “Business”). He also receives rental income from property owned in the UK and offers a travel service to Pakistan. (2). The Business is supervised by HMRC for anti-money laundering purposes. It is a cash only business with no credit facilities. The Appellant receives cash from customers face to face at the business premises with an instruction from those customers to make payment overseas. The Appellant will then decide which principal remitter it will use to make those payments and will carry out customer due diligence as required by those remitters’ policies and applicable UK regulations. (3). The Business only operates outward transfers and does not accept remittances into the UK. The Appellant’s properties (4). The Appellant owns two properties which are relevant to this appeal. These are:(a) A residential property at 39 Halfway Avenue, Luton (“39 Halfway Avenue”). This is the Appellant’s personal residential property. It was acquired in February 2005 for approximately £225,000 with a mortgage and a cash deposit of £100,000. This property underwent extensive renovation between 2009 – 2015.(b) A business property at 188 Dunstable Road, Luton (“188 Dunstable Road”) which is used as the Appellant’s Business premises. It was acquired in March 2008 for approximately £260,000 with a mortgage and a cash deposit of £50,000. Procedural background (5). The Appellant has been registered for income tax self-assessment since 5 June 2022, filing income tax self-assessment returns annually since 2002/2003. (6). The Appellant’s total taxable income shown on his tax returns for each of the tax years 2004/2005 to 2014/2015 ranged from a minimum of £8,766 (for 2004/2005) to to a maximum of £28,171 (for 2014/2015). (7). On 2 August 2016 HMRC officers Paul McShane and Paul Emery visited the Appellant’s business premises to conduct an unannounced inspection of the premises and the business assets/records. (8). During the visit the Appellant said that he was feeling unwell and the HMRC officers agreed to leave and return the next day. (9). On 3 August 2016 the Officers returned. The Appellant was also issued with a notice of enquiry into his tax affairs for the year ended 2015. The enquiry was opened under s 9A TMA (the “2015 Enquiry”). (10). During the 3 August 2016 visit the officers discussed the Appellant’s business and personal tax affairs with him and were permitted to review the business records and computer systems. The most relevant outcomes from the visit were as follows: (a) An inspection of the business records identified what HMRC believe to be a cash shortfall of approximately £11,261.91 for the days between 1 – 3 August 2016. The amount of the shortfall is not agreed by the Appellant. (b) An inspection of the business records identified transactions that were not found in the systems used to transact with the principal remitters. Names, dates and amounts did not match.(c) Files which appeared to be contemporaneous digital business records (such as spreadsheets and other Excel files) were discovered but were inaccessible.(d) In addition to the formal business records an additional set of records was discovered. These records were in the form of spread sheets setting out details of transactions – including the names of the senders, amounts, date and locations – which did not tally with the summary of the transactions made through the official portals of the relevant principal transmitters. Although the aggregate sums involved did tally with the formal business records – the number of transactions and the named remitters did not.(e) An undocumented employee was found.(f) The Appellant stated that the deposits used for acquisition of the Properties were funded from the sale of property in Pakistan. These funds had not been reported on the Appellant’s tax return. The Appellant was at the time unable to explain how the funds came into the UK. He subsequently stated that some of the funds were a gift from his father arising from the sale of property owned by his father in Pakistan. He later explained that the funds came to the UK “outside the conventional banking system”. This was eventually clarified to mean that several individuals brought the cash into the UK and passed it over to him.(g) The Appellant produced a bank statement for 188 Dunstable Road showing an outstanding mortgage balance of £42,364 as at 17 June 2016. (11). The Appellant and his then advisor Mr Rashid of Imperial Accounting entered into correspondence with HMRC between September 2016 and September 2018. From September 2018 to date the correspondence continued with the Appellant’s current representative Mr Arenstein.[28]The procedural history over this period is complex and no clarity was given by either party. The following is a summary of what appears to have happened: HMRC issued a letter dated 12 August 2016 to the Appellant requesting further information in respect of his tax affairs followed by an initial taxpayer information notice dated 6 March 2017 formally requesting that information. The Appellant appealed against the 6 March 2017 notice and that notice was subsequently rescinded. An information notice dated 18 November 2020 was also issued. The 18 November 2020 information notice was subject to internal HMRC review at the request of the Appellant. The review conclusion varied the notice, narrowing the scope of the information sought. This was appealed further by the Appellant. Further correspondence was entered into and there was then a long break in the matter because of the Appellant’s illness. A view of the matter letter was issued by Officer McShane on 22 December 2022. The Appellant subsequently requested a statutory review on 11 January 2023. The review conclusion dated 10 March 2023 partially upheld the notice. Part was not upheld as the documents required were “old” (more than six years old) and needed, under Para 20, Sch 36 authorisation by an Authorised Officer.[29]On 10 August 2023 Officer McShane was granted authorisation from an Authorised Officer to issue an information notice to the Appellant seeking old documents. A new information notice was then issued on the same day (and it is this notice which is the subject of this appeal). The notice required the production of approximately 25 categories of documents relating to inter alia: the purchase of three properties, the funds from Pakistan, a finance arrangement with Hitachi Capital and any family support to make up the perceived shortfall in the family’s household income.[30]On 1 September 2023 the Appellant appealed against the Notice pursuant to s 31 TMA.[31]On 12 February 2024 the Appellant requested an independent review of the Notice pursuant to s 49B TMA 1970.[32]On 16 May 2024 HMRC notified the Appellant prior to commencement of the independent review (as it was required to do) that their then current view of the matter was that the items requested were required. This was on the basis that HMRC had reason to suspect that an amount that ought to have been assessed to tax may not have been so assessed.[33]On 2 October 2024 HMRC issued a review conclusion letter. This resulted in variation of the Notice which reduced substantially the categories of items requested from 25 to 6. One request was also amended slightly.[34]On 28 October 2024 the Appellant appealed to the Tribunal.

Officer McShane’s witness evidence

[35]Officer McShane has been an HMRC officer for over 25 years. He is currently a senior investigator. The following is a summary of the key points of his evidence. Cash Shortfall(1) He considered the cash discrepancy to be a significant issue given the nature of the business – i.e. one which was cash intensive, operating within a heavily regulated sector and subject to anti money-laundering provisions.(2) The “cash” in the business is essentially its “trading stock”. Once cash is received from customers there is a limited time window in which it must be deposited into the account of the relevant principal transmitter.(3) The inspection which determined the shortfall involved checking: (a) the business cash records and amount of cash held on the premises as at the morning of Wednesday 3 August 2016; and (b) all transactions which had taken place during and after banking hours on Monday 1 August 2016, and all transactions entered into during and after banking hours on Tuesday 2 August 2016.(4) The principal remitters eventually received all of their cash – but the Appellant has not provided an explanation which Officer McShane finds credible for the discrepancy in cash held on the premises. Record keeping(5) Officer McShane could not explain precisely how the inconsistencies in record keeping led him to believe that business income was being under reported for tax. His suspicion was that the second set of records which had been found indicated that additional activity was taking place which was generating income for the Appellant. In essence he was not satisfied that the profit of the Business was limited to the commission paid to the Appellant by the principal remitters. He suggested that the Appellant might have been artificially splitting larger transactions into smaller ones that were under the threshold for AML or similar regulations. This was however speculation on his part. Property purchases(6) Officer McShane believed that the Appellant’s declared business profits were not sufficient to have funded the deposits for the Properties or their on-going costs.(7) He confirmed that no capital gain or remittance had been recorded in respect of the deposit monies.(8) He was not satisfied with the Appellant’s explanation of the source of the funds used for the Property purchase deposits. He noted that the initial explanation of the cash arising from properties being sold had changed subsequently to the monies having arisen by way of inheritance. (It was however pointed out by Mr Arenstein that the two explanations were not necessarily inconsistent if the properties had been owned by the Appellant’s father.)(9) He was also not satisfied with the Appellant’s explanation of how the funds had come into the UK. He believed that as an experienced international money remitter the Appellant should have been able to provide a better explanation than the one provided – which was simply that the money had been transferred “outside of the conventional banking system”. He was also sceptical as to the Appellant’s subsequent clarification which was that individuals had brought the cash into the UK for him. In this regard he explained that he was aware of exchange controls in Pakistan which impose strict limits on how much cash could be taken out of the country. He did not however provide any details of those controls. Income v expenses(10) Officer McShane explained how he had reviewed and assessed the Appellant’s income and expenses. His focus was on whether the Appellant’s income, based on available bank statements and the amount of income declared on his tax returns for the relevant years. was sufficient to cover his known expenses as shown in the Appellant’s bank accounts (taking into account child benefit and tax credits).(11) Expenses incurred on the Appellant’s credit cards and expenditure incurred by the Business which appeared to be personal expenditure were not taken into account in this exercise. No account was taken of expenditure needed to maintain the Appellant’s cars or to fund property renovations undertaken during the period. Mortgage capital payments were also excluded.(12) Officer McShane’s conclusion was that the Appellant’s likely expenditure significantly exceeded his declared income, which suggested to him that he was in receipt of funds which were not being declared to HMRC.

The burden of proof

[36]The burden of proof rests with HMRC to show that the Notice was validly issued and the requirements of Schedule 36 met. HMRC accepted that the burden of proving that the items requested by the Notice are reasonably required for the purpose of checking the Appellant’s tax position and that they have reason to suspect an underassessment also lies with them. Once that burden has been discharged the burden then passes to the Appellant to demonstrate otherwise.[37]The standard of proof is the ordinary civil standard which is the balance of probabilities.

The Tribunal’s role

[38]The Tribunal must come to its own conclusion, taking account of all matters which have come to light since issuance of the Notice, that:(1) for the relevant tax years other than 2014/15 (the only year in which there is an open enquiry), an HMRC officer has a reasonable basis for suspecting a tax insufficiency; and that(2) the information and documents sought are reasonably required in order to check the Appellant’s tax position

The Appellant’s submissions

[39]The Appellant’s grounds of appeal are that the documents specified in the Notice are not reasonably required to check its tax position and, for the tax years other than 2014/2015, there is no reason for HMRC to suspect, an under assessment of tax.[40]The Appellant has not in its notice of appeal otherwise challenged the validity of the notices.[41]The additional submissions made by Mr Arenstein are referred to in the discussion below.

HMRC’s submissions

[42]Mr Khan submitted that HMRC have three reasons to suspect that tax has been under assessed. These are;(1) the inconsistencies in the Appellant’s business records;(2) the large cash deposits used to finance the Appellant’s property acquisitions; and(3) the significant discrepancy between the Appellant’s expenditure and his declared taxable income.[43]He added that despite the lengthy period of correspondence with the Appellant’s advisors and the various arguments put forward by them, HMRC’s reasons for suspecting the under assessment for the relevant periods remain. Discussion The discrepancies in the business records

Discussion

[44]Officer McShane outlined in his witness evidence his concerns arising after inspection of the Appellant’s business premises and records in August 2016. They included (but are not limited to);(i) the existence of an undisclosed employee,(ii) a shortfall of just over £11,000 in the cash sum held by the business (over a sample period),(iii) the existence of a second set of records,(iv) references to a set of electronic records (spreadsheets headed “MT Banking”, “ARY Banking” and HB Banking” found on the Appellant’s computer which were shown as deleted and not recoverable, and(v) the lack of any records of the cash drawings taken by the Appellant from the Business.

The Cash Shortfall

[45]There has been extensive correspondence between HMRC and the Appellant’s advisors relating to the cash shortfall. Various explanations have been given by the Appellant’s advisors as to the reason for the shortfall and challenges made to HMRC’s computations of the shortfall. Mr Arenstein refers also to HMRC having agreed that there is no shortfall (or that the agreed amount is negligible). However, Mr Khan and Officer McShane state that there was no such agreement. The correspondence also indicates that there has been no agreement although there has been consideration of the explanations put forward by the Appellant’s advisors.[46]I find that there has been no agreement in this regard.

The business records

[47]Correspondence included in the Bundle shows that several explanations were given by the Appellant’s advisors as to the reasons for the second set of records maintained by the Appellant.[48]These reasons included the records (spreadsheets) being kept as a “guide” for the Appellant being only for his information – with the names reflecting the person who he was dealing with rather than the name of the underlying customer whose name was shown on the receipts.[49]No verifiable explanation has been given as to why the spreadsheets showed a different (higher) number of transactions than those shown in the official records (although it is noted that the overall amounts shown on the additional spread sheets and the overall amount shown on the official records tallied).[50]In addition, no explanation was given in respect of the deleted spreadsheets on the Appellant’s computer nor the reason for their existence.[51]I note also that no explanation appears to have been given for the failure to maintain any records in respect of the employee (including compliance with PAYE obligations) or to record personal drawings from the business.

The property purchases

[52]There are two related issues here. The first is the source of the deposit funds. The second is the Appellant’s ability to finance the mortgage payments (including payments of capital) for each property together with his other estimated living expenses taking into account the income declared on his tax returns.

Deposit monies

[53]HMRC point to the fact that 39 Halfway Avenue was purchased for £225,000 when the Appellant’s declared taxable income 2004/2005 was £8,766 and 188 Dunstable Road was purchased in March 2008 for £260,000 when the Appellant’s declared taxable income for the year ended 2008 was £16,791. Despite the Appellant’s level of declared income in those years he was able to fund a deposit of £100,000 for Halfway and £50,000 for Dunstable Road.[54]The Appellant’s advisors have explained over a lengthy course of correspondence with HMRC that the deposit monies were obtained from an inheritance in Pakistan and that the money was brought into the UK in cash. However, no details of such an inheritance (although he has provided a statutory declaration as to his contentions). He has also failed to provide any verifiable information as to how the funds were brought into the UK, other than claiming that the money was transferred “outside the conventional banking system”, which was later clarified by his advisor to mean that it was brought into the country in small amounts by unidentified individuals and then handed to him.

Shortfall in declared income vs outgoings

[55]Leaving aside the deposit monies, HMRC contends that the Appellant could not have serviced his mortgages and maintained his lifestyle on his declared income. Here HMRC have provided computations for the tax years 2007/2008 to 2016/2017 based on bank statements in their possession and the outgoings shown on them, together with the Appellant’s declared income based on his (and his wife’s) HMRC records (including tax credits and child benefit payments).[56]For the years analysed, HMRC showed total income, after taking into account tax paid, known direct debits and mortgage payments, ranging from £20,536.20 in 2007/2008 to £40,316.20 for 2016/2017, with the balance left over to fund all other expenses being negative for years 2008/2009 to 2013/2014 (ranging from -£15,303.15 to -£7,101.17), with a surplus in the remaining years ranging from £201.78 to £2,858.17.[57]I note that these schedules do not take into account the running or purchase costs of the Appellants two cars, utility bills, food. clothing or any of the trips to Pakistan made by the Appellant. They also exclude personal expenditure which might have been paid via his business bank account or by credit card. Importantly they also leave out mortgage capital payments on 188 Dunstable Road (records having shown that a significant element of the capital of the mortgage had been repaid over the period).[58]The Appellant’s advisor has raised several objections to HMRC’s computations – including the failure to properly include capital allowances. They also contend – see below – that although in the Appellant’s name, a finance agreement with Hitachi was entered into on behalf of a family member and that the family member is responsible for paying it. I consider this further below when dealing with the information sought by HMRC. Other arguments have also been raised such as HMRC failing to take into account wider family support/gifts but no evidence has been provided to support those arguments.[59]However, even if the adjustments sought by the Appellant’s advisors were correct they would not, as Mr Khan pointed out, necessarily be sufficient to address the significant apparent shortfall in his means particularly when capital payments in respect of 188 Dunstable Road mortgage are taken into account. I note here that HMRC have computed that capital payments of approximately £167,636 were paid on the outstanding mortgage for Dunstable Road – between 2008 and 2016.

Does HMRC have reason to suspect?

[60]The first question that I must determine for each tax year other than 2014/2015 (the open enquiry year), is whether an HMRC officer has a reasonable basis for suspecting a tax insufficiency.[61]It is then necessary to consider for each of the relevant tax years whether the documents sought are reasonably required in order to check the Appellant’s tax position.[62]As Mr Arenstein has submitted, in making its determination the Tribunal must take into account all matters that have come to light since the Notice was issued and so decide whether there is a reasonable basis for suspicion as at today – taking into account all of the information available.[63]I was referred by Mr Arenstein to the decisions of this tribunal in Hackmey and Thomas Perring and Michael Perring v HMRC [2021] UKFTT 0110 (TC). Each of those cases considered, amongst other things, the requirement for reasonable grounds.[64]In Hackmey Judge Aleksander made the point that the requirement to have “reason to suspect” “sets a low bar” ([36]). He further explained that the requirement to “suspect” is naturally a lower standard than that required for making a discovery assessment which requires an officer to “believe” there to be an insufficiency of tax (citing in support of that proposition Jerome Anderson v HMRC [2018] UKUT 0159 (TCC)).[65]He went on to state (following a reference to the judgment of

Judge Gething in Perring) that:

“I find that the requirement for the suspicion to be based on “reasonable grounds” means that this suspicion must have an objective basis. In order for HMRC to meet the burden of proof as regards Condition B, not only must they share the grounds for their officer’s suspicion, but they must provide evidence demonstrating that the officer is entitled to have that suspicion and that it is objectively reasonable for him or her to have it.”
[66]I agree with Judge Aleksander and adopt that formulation in my approach.[67]HMRC have identified a number of different areas of potential concern. They have also, more than once, explained the basis of their concerns to the Appellant.[68]The Appellant has, through his advisors, provided certain information in respect of some of these matters but that information has not been sufficient to allay HMRC’s concerns.[69]Mr Arenstein has pointed out that in relation to the business records HMRC have not, until the hearing, been specific as to how they thought the Appellant was earning additional income. He noted that Mr McShane’s approach was simply that “there must be something going on” and it was only at the hearing after lengthy questioning that Mr McShane suggested that the Appellant might have been attempting to evade anti money laundering rules by artificially dividing larger transactions into smaller ones.[70]I accept Mr Arenstein’s comment that Mr McShane was not specific as to how in his view the Appellant was generating additional untaxed income. However, I agree with HMRC that the inconsistencies in the records per se provide an objective reason for suspicion – as the accuracy of the Appellant’s reported business income clearly becomes questionable. Further, it cannot, logically, be a requirement for HMRC to understand what precisely what the Appellant might be doing – as that is what HMRC is seeking to establish by examining the documents specified in the Notice.[71]In any event, the issue is not central in this case as the inconsistency in the Appellant’s business records is only one of HMRC’s grounds for suspicion[72]Dealing next with the house deposits – I agree with HMRC that the lack of clarity around them gives rise to a reasonable ground of suspicion of an underassessment. The sums are very large in relation to the Appellant’s reported income, no verifiable information as to their source has been provided and the explanation as to how the funds came into the UK is extraordinary.[73]Moving on to the shortfall in income versus expenditure, Mr Arenstein contended that for a potential discrepancy in income and expenditure to give rise to reasonable grounds for suspicion of an under-assessment, the mismatch must be “compelling”. He based this on a comment made in Perring: “In our view, in the absence of a discovery, which required evidence of an assessment being an underassessment, or compelling mismatches of income and expenditure … it would be unreasonable for an Officer to issue an information notice for a tax year in respect of which no enquiry has been made …” [29].[74]The decision in Perring is not binding on this Tribunal. In any event I consider that the potential discrepancies in the Appellant’s income and expenditure are compelling as his expenditure potentially exceeds his income by a significant margin (noting again that HMRC’s schedules do not include material items of expenditure (see the discussion above)).[75]Mr Arenstein also pointed out that each tax year must be considered in isolation and HMRC did not provide a breakdown of expenditure for the years prior to 2007/2008.[76]HMRC explained that this was because bank statements were not available for the earlier years and they operated on the basis of what was available. Officer McShane noted that no other sources of income had been reported in the earlier years and he had taken the view that the Appellant’s behaviour was likely to be have been consistent with his behaviour in the subsequent years – there being no reason to consider otherwise.[77]Taking Officer Mc Shane’s explanation into account together with the discussion of reasonable suspicion above, and taking into account the other areas of suspicion identified by HMRC, I consider that that HMRC had sufficient reason to suspect that the Appellant’s expenditure was likely to have exceeded his income for the tax year 2004/2005 onwards so indicating the existence of undeclared funds.[78]For completeness Mr Arenstein made the point that in two of the relevant tax years HMRC’s schedules showed a positive balance. That, however, must be seen in the context of the schedules not being comprehensive and so a small positive balance does not in my view alter the potential significant shortfall when the Appellant’s additional expenditure is taken into account. On that basis I disregarded his point.[79]I find therefore that HMRC had, for each of the tax years covered by the Notice (other than 2014/2015 which as an open enquiry year is not subject to this requirement), reason to suspect that an amount which ought to have been assessed to tax for may not have been so assessed.

Are the documents reasonably required?

[80]I look here at the specific requests in the Notice. Item 9 – sight of the mortgage statements from date of purchase to date for 39 Halfway Avenue[81]HMRC contend that these documents will help them to establish what payments were made towards the mortgage repayments and enable them to differentiate between capital and interest payments and identify overpayments.[82]This will they say assist in establishing whether the Appellant’s outgoings exceeded his declared income and provide further evidence of whether the Appellant received or utilised undisclosed taxable additional income.[83]Given the need to assess accurately the Appellant’s outgoings – I agree that the statements are reasonably required to check the Appellant’s tax position in respect of his income tax liability for the tax years 2005/2006 to 2014/2015 inclusive.[84]The position is less clear for the tax year 2004/2005, the year to which the Discovery Assessment relates. The Discovery Assessment is vague as to what is actually being assessed for 2004/2005 and no computation of the sums assessed has been provided. It appears to focus on the deposit paid in 2004/2005 for 39 Halfway Avenue but refers also to the deposit for 188 Dunstable Road even though it was not paid in that tax year. The Assessment mentions other factors raised by HMRC in the course of the investigation (the Cash Shortfall and the inconsistencies in the business records) but does not appear to link those directly to what is being assessed.[85]HMRC have chosen not to provide any information in respect of the Discovery Assessment including what additional information they obtained in order to be able to issue it. As mentioned earlier in this judgment they have decided instead to withdraw their request for those items of information which they regarded as relating specifically to tax year 2004/2005.[86]However, the mortgage statements requested in Item 9 would also cover statements for tax year 2004/2005 and so the effect of the Discovery Assessment on the Notice still needs to be considered.[87]As Mr Arenstein submitted, the threshold knowledge requirement for issuing a Discovery Assessment is higher than that needed for issuing a taxpayer information notice. It is reasonable therefore to assume that having issued the Notice, HMRC received some additional information relating to 2004/2005 enabling issue of the Discovery Assessment.[88]Without more information it is not possible to say more but what can be said is that it leaves open the question of whether the documents sought in the Information Notice for the 2004/2005 tax year can be said to still be reasonably necessary for HMRC.[89]Given that the burden of proof is on HMRC to show that the documentation requested is reasonably necessary to assess the Appellant’s tax position for each year, I find that HMRC has not discharged that burden for the tax year 2004/2005 tax year.[90]The information sought under Item 9 should therefore exclude information relating to the 2004/2005 tax year. Item 10 – a copy of the mortgage application for 188 Dunstable Road and any self-certified business accounts which accompanied it[91]HMRC contend that these items are reasonably necessary as they will help them to identify and evidence the value and source of the deposit, the value and terms of the mortgage and the level of income documented by the Appellant on which the mortgage was based. The business accounts will, they say, allow them to check whether the Appellant has recorded income which has not been included in his self-assessment tax returns.[92]Mr Arenstein submitted that based on the decision of this tribunal in Akhtar v HMRC [2025] UKFTT 00395 (TC), mortgage application documents cannot be “reasonably required” to check a tax position as, even if inconsistent with the taxpayer’s tax documentation, it may not be possible to identify which figures are correct. The decision in Akhtar is not binding on this tribunal, but in any event, I disagree with Mr Arenstein’s submission. Akhtar involved a discovery assessment and the question that the tribunal had to determine was whether Mr Akhtar intended to mislead HMRC. The tribunal held that the mere fact of inconsistent information being provided to a third party does not of itself demonstrate an intention to mislead HMRC. It did not comment on HMRC’s ability to determine the correctness of the records or on whether it was reasonably necessary to review the mortgage application documents in order to determine the appellant’s tax position.[93]I agree with HMRC that the documents are reasonably necessary to enable it to check the Appellant’s tax position.[94]Mr Arenstein also submitted that it is reasonable to assume that if HMRC have determined that the deposit for 39 Halfway Avenue was sourced from undeclared business income, they will have concluded the same for the 188 Dunstable Road deposit and on that basis documents relating to that deposit cannot be reasonably required to determine the Appellant’s tax position.[95]As I have noted in relation to Item 9, the Discovery Assessment mentions the deposit used for 188 Dunstable Road although it is difficult to say whether HMRC have taken any view on it given the vagueness of the Assessment. As for Item 9. I consider it reasonable, taking into account the burden of proof, for Item 10 to exclude any material relating to the 2004/2005 tax year.

Item 11 – a copy of the solicitor’s completion statement for 188 Dunstable Road

[96]HMRC contend that this document will help them to identify all payments made/received when acquiring the property. This will aid identification of all payments made by and received by the Appellant in connection with the acquisition include the deposit monies.[97]As outlined above, HMRC is seeking to establish the source of the deposit monies, its suspicion being that the deposit was funded from undeclared business income. As the completion statement may give details of all payments made and received in connection with the acquisition I agree with HMRC that the documents are reasonably necessary to enable it to check the Appellant’s tax position for the years in question other than 2004/2005.[98]As with Items 9 and 10, I consider it reasonable given the Discovery Assessment and taking into account the burden of proof, for Item 10 to exclude any material relating to the 2004/2005 tax year. Item 13 – sight of the mortgage statements for 188 Dunstable Road from the date of purchase to date[99]As outlined in relation to the same request for 179 Halfway Avenue, HMRC is seeking details of the mortgage payments to enable it to assess the amounts payable by the Appellant – including the amount of capital repayments. This is in order to assess whether the Appellant’s expenditure exceeded his declared income. As with the request in relation to 179 Halfway Avenue I consider that these documents are reasonably necessary for HMRC to check the Appellant’s tax position for the relevant years. Item 23 - a copy of the Finance Agreement with Hitachi Capital and Item 24 – any evidence within your power or possession to show that the monthly repayments to Hitachi Capital were serviced by your sister in law and not met from your declared household income[100]I deal with these together. As with the mortgage payments, HMRC contend that information in relation to the finance agreement will assist them in determining whether the Appellant’s expenditure exceeds his declared income.[101]Little detail is available of this agreement (it was apparent at the hearing that HMRC did not know what it was for). The Appellant’s advisors maintain that although in the Appellant’s name the agreement was entered into on behalf of a relative and so should not be taken into account in assessing his financial commitments.[102]I agree with HMRC that the details sought are reasonably needed to check the Appellant’s tax position for the relevant tax years – as they will enable HMRC to determine the expenditure to be taken into account in assessing whether the Appellant was living beyond his declared means which would indicate the availability of an undeclared source of funding.

Conclusion

[103]For the reasons set out above I direct that the Notice shall be varied to;(1) exclude entirely Items 6 and 7, and(2) exclude from Items 9, 10 and 11 any material related to the 2004/2005 tax year.[104]I direct that the Appellant must comply with the requirements of the Notice as amended within such period as is reasonably specified in writing by an HMRC officer following release of this decision.[105]This document contains full findings of fact and reasons for the decision.[106]This decision is final pursuant to Paragraph 32(5) Schedule 36, Finance Act 2008. Release date: 16th DECEMBER 2025