Case Number: TC09182
Location: Decided on the papers
Appeal reference: TC/2021/00619
Procedure – appeal against information notice - paragraph 1(1) Schedule 36 Finance Act 2008 - whether information reasonably required to check tax position – whether reason to suspect amount of tax may not have been assessed - appeal dismissed
Judgment date: 24 May 2024
Decided by:
TRIBUNAL JUDGE GREG SINFIELD
Between
GENERATOR POWER LIMITED
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
The Tribunal determined the issues on the papers under Rule 29 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 and with the consent of the parties
DECISION
Introduction
This is an appeal by Generator Power Ltd (‘GPL’) against an information notice issued by the Respondents (‘HMRC’) on 27 January 2020 (‘the Information Notice’) under paragraph 1 of Schedule 36 to the Finance Act 2008 (‘FA 2008’).
There are two issues in this appeal. The first is whether all the information specified in the Information Notice is reasonably required for the purpose of checking GPL’s tax position. The second issue is whether HMRC has reason to suspect that an amount that ought to have been assessed to tax may not have been assessed. HMRC maintain that they have reason to suspect that there has been an understatement or inaccurate or erroneous treatment of tax and that the information requested in the Information Notice is reasonably required for the purpose of checking GPL’s tax position. GPL contests that view and submits that the information is not reasonably required and that HMRC cannot have any reason to suspect that GPL has not accounted correctly for all relevant tax in its corporation tax self-assessment (‘CTSA’) tax returns.
Background facts
The following background facts are largely taken from paragraphs 5 to 31 of HMRC’s statement of case which GPL accepted as accurate, subject to certain comments in its written submissions of 15 September 2021 which are incorporated in the narrative below, and the witness statement of Mr Fraser Duff, the HMRC officer who issued the Information Notice to GPL. Other background facts are derived from the documents submitted by the parties.
At all material times, Mr Stephen Cardwell was the sole director and sole shareholder of GPL. From 2007, GPL purchased a number of properties (‘the Properties’) which had been chosen by Mr Cardwell. GPL acquired the Properties on the instructions of Mr Cardwell and intending to transfer them to him. In most cases, GPL transferred the Properties to Mr Cardwell as a transfer of company assets either immediately or shortly after acquiring them. The acquisitions and transfers of the Properties are referred to hereafter as the “Property Transactions”.
In their statement of case, HMRC say that GPL stated that the Property Transactions were due to a change in Mr Cardwell’s remuneration package. In its submissions, however, GPL states that it is not aware of any change to Mr Cardwell’s remuneration in 2007. In his witness statement, Officer Duff says that, in their email of 29 October 2018, GPL’s representative explained that the Property Transactions were more financially beneficial to Mr Cardwell, compared to the alternatives of cash remuneration or dividends, in view of the terms of his recent divorce settlement. Officer Duff further says that Mr Cardwell’s salary reduced from £400,000 to £120,000 per annum following his divorce. GPL says that it is not aware of any change in Mr Cardwell’s salary following his divorce.
It is not necessary for me to decide whether Mr Cardwell’s remuneration package changed in 2007 or at any other time for the purposes of deciding this appeal. It is relevant to this decision to record that it is accepted that the Property Transactions took place as described above.
HMRC state that the total value of the Properties transferred by GPL to Mr Cardwell was approximately £5.6 million. GPL does not accept that the amount of £5.6 million is correct but has not provided any alternative value for the Properties.
HMRC also say that GPL claimed tax relief in its CTSA returns amounting to approximately £288,000 in respect of legal fees and other costs incurred in relation to the Property Transactions. GPL says that this is not correct and there is no evidence that it claimed relief for the legal fees and other costs in its CTSA returns. Further, GPL does not accept the figure of £288,000 for the legal fees but has not provided any alternative amount. In their statement of case, HMRC accept that GPL did not claim tax relief for the legal fees when calculating its corporation tax but contend that there are four possible alternative tax treatments of the fees which have yet to be determined. These are described in [33] below.
GPL sought to treat the Property Transactions as employment related benefits within the meaning of section 206(2) of the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’). HMRC state that GPL seem to have misquoted the relevant legislation and that it is not clear how GPL considered that the Property Transactions should be taxed or on what statutory basis.
GPL filed its CTSA tax return for the accounting period ending 31 October 2016 in time on 20 October 2017.
On 29 May 2018, HMRC opened an enquiry into GPL’s CTSA tax return for the accounting period ending 31 October 2016 under paragraph 24(1) of Schedule 18 to Finance Act 1998 (‘FA 1998’) and notified GPL by letter.
On 19 September 2018, HMRC asked GPL for information regarding the Property Transactions. GPL responded on 29 October 2018 with an explanation of the Property Transactions.
On 13 November 2019, HMRC sent GPL an action plan and request for certain information, including details of the Property Transactions and the associated legal and other expenses, by email.
In a letter dated 15 January 2020, GPL provided some of the information requested in HMRC’s e-mail of 13 November 2019. This included some details of the Property Transactions and the related expenses. In the letter, GPL stated that the Property Transactions were not related to any employment or services provided by Mr Cardwell.
On 27 January 2020, Officer Duff issued the Information Notice to GPL. The Information Notice required GPL to provide, before 28 February 2020, the following:
“Statutory records or other information
Statutory records are the records that tax law says a person must keep.
Review the analysis summary at Appendix 3 and provide copies of the missing invoices.
Other documents or information
Provide a schedule of all properties which have been transferred to Mr Cardwell since 01/11/2007. For each entry, explain how the value of the transfer was calculated.
Provide a schedule of all legal fees associated with the purchase of properties for purpose of their transfer to Mr Cardwell since 01/11/2007.
Please identify which of these fees have been taxed as earnings or a benefit of Mr Cardwell.
Provide a calculation showing the sales of fuel and the VAT charged on each sale for the following VAT periods: 07.16, 10.16, 01.17, 04.17, 07.17, 10.17, 01.18, 04.18, 10.18, 01.19’.
Provide a total of Net price and VAT charged for each of the VAT periods at point 4.”
Subsequently, HMRC withdrew their request under paragraph 1 of the Information Notice and GPL provided the information specified in paragraphs 4 and 5. GPL has also provided some information specified in paragraph 3, namely information about the legal fees incurred in relation to the Property Transactions for the period 1 November 2013 to 31 October 2018.
GPL has not provided the schedule of properties transferred to Mr Cardwell since 1 November 2007 and their values as required by paragraph 2 of the Information Notice. That information is referred to hereafter as the ‘Property Schedule’. GPL has also not provided the schedule of legal fees in relation to the Property Transactions for the accounting period ending 1 November 2007 to 31 October 2013 required by paragraph 3. That information is referred to hereafter as the ‘Legal Fees Schedule’. The Property Schedule and the Legal Fees Schedule are the only items of information that remain outstanding and are the subject of this decision.
On 4 February 2020, GPL notified HMRC that they intended to appeal against the Information Notice and that the grounds of appeal would follow. HMRC replied on the same date and acknowledged GPL’s intention to appeal.
On 12 February 2020, GPL notified HMRC of its appeal against the request for the Property Schedule in the Information Notice.
On 28 February 2020, GPL indicated to HMRC that it wished to appeal against the request to provide information in the Legal Fees Schedule, ie information about legal fees in relation to the Property Transactions between 1 November 2007 and 31 October 2013.
On 27 April 2020, Officer Duff issued HMRC’s view of the matter in question and offered a review which was accepted by GPL.
On 1 May 2020, GPL responded to HMRC’s view of the matter letter dated 27 April 2020.
On 5 May 2020, HMRC revised its view of the matter letter to GPL, taking into account certain information that had been provided to HMRC by GPL.
On 22 May 2020, GPL provided a further response to HMRC’s view of the matter letter dated 27 April 2020.
On 19 June 2020, GPL responded to HMRC’s revised view of the matter letter dated 5 May 2020. In that letter, GPL acknowledged that “it is potentially arguable that [the legal fees associated with the Property Transactions] should have been posted to Mr Cardwell’s director’s loan account rather than to the profit and loss account.”
On 31 July 2020, HMRC further revised their view of the matter letter in light of the correspondence since the original letter. Notwithstanding the further revision, HMRC maintained their view that GPL must provide the Property Schedule and the Legal Fees Schedule as required by the Information Notice.
On 4 September 2020, HMRC emailed GPL saying that HMRC considered that the appeal was now closed under section 49C(4) of the Taxes Management Act 1970 (‘TMA 1970’).
On 7 September 2020, GPL replied to HMRC’s email and suggested that it did not consider that a referral to a statutory review would be the most effective means of resolving the dispute between the parties as this would be the first step towards formal litigation.
On 16 September 2020, GPL and HMRC met to discuss compliance with the outstanding items on the Information Notice, including but not limited to the Property Schedule and the Legal Fees Schedule. The parties were unable to reach an agreement.
On 1 October 2020, GPL accepted an offer to submit HMRC’s decision to issue the Information Notice for a statutory review. GPL said that it would provide review submissions later.
On 15 October 2020, GPL made representations for the purposes of the statutory review.
On 14 December 2020, HMRC wrote to GPL confirming that a statutory review was being undertaken.
On 27 January 2021, HMRC issued their statutory review conclusion letter which upheld the decision to issue the Information Notice and stated that the information requested was reasonably required for checking GPL’s tax position, the Information Notice had been correctly issued and, therefore, GPL was required to comply with it.
On 25 February 2021, GPL lodged its notice of appeal with the Tax Chamber of the First-tier Tribunal (‘FTT’).
Summary of legislation
An information notice is how HMRC can require a person to provide information or produce a document that is reasonably required for the purpose of checking a taxpayer’s tax position or for collecting a tax debt of the taxpayer. Information notices may be issued to the taxpayer or a third party. This case concerns a taxpayer notice issued under paragraph 1(1) of Schedule 36 FA 2008. The relevant provisions of Schedule 36 FA 2008 are set out in the Appendix to this decision.
There are some restrictions on the information that can be required by an information notice. For example, paragraph 18 of Schedule 36 provides that a person cannot be required to produce a document that is not in their possession or control and paragraph 19 provides that a person cannot be required to produce information relating to the conduct of a pending tax appeal. None of those restrictions is relevant in this case. Paragraph 20 imposes a time limit in that a person cannot be required to produce a document, the whole of which is more than six years old, unless the information notice is issued with the agreement of an authorised HMRC officer which it was in this case.
There are some restrictions on the ability of HMRC to issue an information notice to a taxpayer in relation to a tax year where that person has made a tax return for the period. Paragraph 21(2) provides that HMRC may not give an information notice for the purpose of checking a taxpayer’s corporation tax position in relation to any period in respect of which the person has delivered a CTSA tax return. Paragraph 21(3) provides that the restriction in paragraph 21(2) does not apply if one of four conditions applies. Condition A is that there is an open enquiry into the return for each year. Condition B is that an HMRC officer has reason to suspect that there may have been an under-assessment to tax or an assessment to tax may have become insufficient or that any relief given in earlier periods was or may have become excessive. Conditions C and D are not relevant in this case. HMRC had opened an enquiry into GPL’s tax return for the 2015-16 tax year so Condition A was met in this case in relation to that period. Accordingly, HMRC are not precluded by paragraph 21(2) from issuing an information notice under Schedule 36 in relation to 2015-16 in this case (provided that the information is reasonably required for the purpose of checking GPL’s tax position).
Grounds of appeal and issues
GPL accepts that the Information Notice was validly issued. GPL’s sole ground of appeal against the information notice filed with its notice of appeal to the FTT was as follows:
“We wish to appeal against the detailed terms of the information notice issued on 27 January 2020 by HMRC. It is our contention that not all the information stated within the notice is reasonably required for the checking of the tax returns.”
In a decision issued on 31 August 2022, the FTT permitted GPL to amend its ground of appeal to argue in addition that Condition B in Paragraph 21(6) Schedule 36 FA 2008 was not satisfied in this case.
Accordingly, there are two issues in this appeal, namely:
whether the information in the Property Schedule and the Legal Fees Schedule is reasonably required for the purposes of checking the tax position of GPL; and
whether HMRC have reason to suspect that, as regards GPL, an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed.
In summary, GPL contends that:
neither the Property Schedule nor the Legal Fees Schedule are reasonably required for the purpose of checking its tax position; and
HMRC does not have a valid reason to suspect that an amount which ought to have been assessed to relevant tax for the relevant periods may not have been assessed.
Approach to issues
I approach my consideration of the Information Notice in this case in the same way as Judge Redston in Joshy Mathew v HMRC [2015] UKFTT 139 (TC) (‘Mathew’) at [99]. In relation to the Property Schedule and the Legal Fees Schedule, I ask the following questions:
Does the information or document form part of GPL’s statutory records? If so, GPL has no right of appeal against the requirement to provide the information or document (see paragraph 29(2) Schedule 36 FA 2008) for the reason explained by Judge Cannan in Holmes and Knight v HMRC [2018] UKFTT 678 (TC) (‘Holmes and Knight’) at [13].
Has GPL already provided the information or document to HMRC? If so then the Information Notice has been complied with and there is nothing further for GPL to do or for the FTT to consider.
If GPL has not provided the information or document to HMRC and is unwilling to do so, is the information or document (not being part of the taxpayer’s statutory records) reasonably required for the purposes of checking GPL’s tax position?
Additionally, does HMRC have reason to suspect that, in relation to all accounting periods other than 2015-16, an amount that GPL ought to have been assessed for tax may not have been assessed?
I can dispose of the first question immediately. Paragraph 62 of Schedule 36, as it applies to this case, provides that any information or documents that GPL is required to keep and preserve under or by virtue of the Taxes Acts or any other enactment relating to tax are part of its statutory records. In Mathew at [89], Judge Redston held that:
“In the context of a company, or even a self-employed business, it is usually relatively straightforward to identify statutory records. These will include a business[’s] bank accounts, invoices, purchase orders, till rolls etc.”
Neither party has suggested, and nor does it appear to me, that the Property Schedule and the Legal Fees Schedule are part of the statutory records of GPL. Although the underlying documents which evidence the figures in the Schedules may be part of the company’s statutory records, HMRC did not seek to argue that the Schedules themselves should be so regarded.
As to the second question above, GPL has already provided information about the legal fees incurred in relation to the Property Transactions in the period 1 November 2013 to 31 October 2018. Accordingly, there is nothing further for GPL to do or for me to consider in relation to the Legal Fees Schedule as far as that period is concerned. However, the Property Schedule for all periods and the Legal Fees Schedule for the period 1 November 2007 to 31 October 2013 remain in issue. In relation to those items and periods, the third and fourth questions at [11] above remain to be considered.
The third question raises two issues:
Is the particular item of information or document required for the purpose of checking the taxpayer’s tax position?
Is the requirement to provide the information or produce the document objectively reasonable?
The first issue is really whether there is a sufficient connection between the information or document sought and GPL’s tax position. Paragraph 64 of Schedule 36 defines “tax position” to include the person’s position as regards past, present and future liability to pay any tax. The condition that the information or document must be required for the purpose of checking the taxpayer’s tax position means that the information or document must enable HMRC to check the taxpayer’s liability to pay tax for the relevant period as well as any liability to tax that may arise in the future and, by implication, ensure that the correct amount of tax has been or will be paid. If the information or document does not do that then it is not required for the necessary purpose and, not being part of the taxpayer’s statutory records, HMRC are not entitled to demand it.
The second issue is whether it is reasonable to require GPL to produce and provide the Property Schedule and the Legal Fees Schedule for the relevant periods. In Perfectos Printing Inks Co Ltd v HMRC [2019] UKFTT 388 (TC), the FTT provided a working definition of ‘reasonably required’ with which I agree. At [20], the FTT held that:
“The test that is to be applied is whether or not the items sought are ‘reasonably required’ for the purpose of checking the taxpayer’s tax position. It was submitted by counsel for the appellants that the dividing line as to what was reasonably required when it came to the provision of personal bank statements, as demonstrated in other relevant decisions, lay between those cases where the officer could show a reason to suspect under-assessment and those where the officer was simply on a ‘fishing expedition’. This proposition was not challenged by the Respondents and I found it to be a helpful summation.”
I also agree with and adopt the comments in Sherchan v HMRC [2016] UKFTT 134 (TC) at [50]:
“Information can only be ‘reasonably required’ if it affects a person’s tax position but sometimes it is uncertain whether the information will affect the tax position until the information is obtained. Mr Khawar said that the key test is not whether, as a matter of fact, that information does change a person’s tax position, but if the information is reasonably required for checking the person’s tax position.”
A requirement will be unreasonable where it is so broadly drafted or the class of documents is so large that the request is a ‘fishing expedition’, which is impermissible (see Derrin Brother Properties Ltd v HMRC [2014] EWHC 1152 (Admin) at [20] and Jenner v HMRC [2022] UKFTT 203 (TC) at [22] – [25]). It is not suggested in this case that HMRC are engaged on a fishing expedition, however that is not determinative and there may be other reasons why a requirement is unreasonable, for example where it is disproportionate or excessively onerous. In this case, however, GPL has not submitted that the requirement to produce the Property Schedule and the Legal Fees Schedule is disproportionate or excessively onerous. GPL has submitted that it has already provided some of the information to HMRC and it is unreasonable for HMRC to require GPL to provide the information again. I deal with this point at [29] – [31] below.
The fourth question requires me to consider whether HMRC have shown that Condition B of paragraph 21 of Schedule 36 FA 2008 is satisfied. Condition B applies where HMRC have reason to suspect that there has been an underassessment of tax. HMRC do not have to establish that an amount of tax has not been assessed, only that an officer has a reason to suspect an underassessment. Of course, the reason must itself be reasonable and reasonably held.
Discussion
Burden of proof
There is no binding authority on who bears the burden of proof in relation to the issue of whether the documents and information are reasonably required. As Judge Cannan observed in Holmes and Knight at [20]:
“The absence of any authoritative consideration of the issue is no doubt due to the fact there is no appeal from a decision of the FTT in relation to information notices.”
I follow the same approach as Judge Cannan in that case, Judge Redston in Mathew at [86] and Judge Aleksander in in Hackmey v HMRC [2022] UKFTT 160 (TC) (‘Hackmey’) at [34] in assuming, for the purposes of this decision, that HMRC have the burden of showing, on the balance of probabilities, that the documents and information in the information notice are reasonably required. In any event, HMRC accept that they bear the burden of proof in relation to the issue of whether the documents and information are reasonably required.
HMRC also bear the burden of proving on the balance of probabilities that the information notice meets the relevant statutory condition which is Condition B in this case (see the analysis in Cliftonville Consultancy Ltd v HMRC [2018] UKFTT 231 (TC) at [22]-[39]) for all periods other than 2015-16. Accordingly, HMRC must show that Officer Duff had reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable periods may not have been assessed.
Finally, I agree with Judge Aleksander in Hackmey at [35] that, in reaching its decision, the FTT must take account of all matters that have come to light since the Information Notice was issued including material subsequent to the date of issue of the Information Notice (and, indeed, matters that are established at the hearing) in determining whether the information and documents remain reasonably required.
Are the Property Schedule and the Legal Fees Schedule reasonably required?
In his witness statement, Officer Duff set out why he sought the information in the Property Schedule and why, in his opinion, it was required to check the tax position of GPL in relation to the Property Transactions. Officer Duff wished to check two aspects of GPL’s tax position. The first concerned whether GPL, as employer of Mr Cardwell, complied with its obligations under the PAYE Regulations. The second is whether GPL’s CTSA returns from 2007 onwards were correct and accurate in their treatment of the Property Transactions. HMRC submitted that the Property Schedule was reasonably required to check GPL’s compliance or non-compliance with its obligations under the PAYE Regulations and whether GPL had taxed the Property Transactions correctly.
HMRC stated that GPL considered (or purported to consider) the Property Transactions as transactions which fell under section 206(2) ITEPA 2003. HMRC submitted that section 206(2) relates to assets which have been used by a company or depreciated before the transfer which did not appear to be what had happened in the case of the Property Transactions. HMRC observed that GPL transferred most of the properties to Mr Cardwell almost immediately after it had acquired them and they never appeared on GPL’s Fixed Assets Register.
HMRC submitted that there were at least three possible tax treatments that could apply to the Property Transactions. They could be considered to be any one of the following:
emoluments of Mr Cardwell’s employment in which case they would be taxable under section 62 ITEPA 2003 and there would have been an under assessment of tax and National Insurance Contributions (‘NICs’) by GPL;
benefits provided to Mr Cardwell by reason of his employment in which case they would be taxable under section 203 ITEPA 2003 and there would have been an underassessment of NICs by GPL; or
a distribution of profits by GPL to Mr Cardwell, not as an employee of GPL but as its sole shareholder, and taxable in accordance with under section 1000 Corporation Tax Act 2010 (‘CTA 2010’).
HMRC submitted that they could not determine how the Property Transactions should be treated for tax purposes without further information in the form of the Property Schedule. HMRC also wished to check that all properties that have been purchased by GPL were in fact transferred to Mr Cardwell. The Property Schedule would provide HMRC with the information to allow HMRC to determine the correct tax treatment of the Property Transactions and the exact quantum of any underassessment. That information includes dates of acquisition, purchase prices, dates of transfers and valuations which are necessary to determine how the Property Transactions should be taxed. Officer Duff maintained that the information being sought from GPL and Mr Cardwell as a third party would help him reach a conclusion.
GPL contended that HMRC had accepted that there were previous HMRC enquiries on several occasions that considered and agreed the tax treatment of the Property Transactions. GPL submitted that, to the extent that details of the Property Transactions have already been provided to HMRC as part of those enquiries or associated returns, the information notice should not be upheld.
HMRC made two points in response to GPL’s submissions that there had been previous enquiries. First, there was no previous enquiry into GPL’s CTSA tax returns for the relevant accounting periods only some Employer Compliance reviews which did not ask nor consider any matters now under consideration. Secondly, HMRC submitted that, even if certain matters had been considered before, that did not necessarily mean that HMRC could not consider them again and, if they reached a different conclusion, make a discovery assessment, subject to the provisions in the TMA 1970.
I did not have evidence of the scope of any previous enquiry or review carried out by HMRC in relation to GPL. The only information about them was contained in the parties’ submissions. However, it is not necessary for me to make any finding about whether there was a previous enquiry or review. That is because I accept HMRC’s submission that, even if there had been an earlier consideration of the Property Transactions, that would not mean that the Property Schedule and the Legal Fees Schedule may not be reasonably required by HMRC subsequently. It may be that HMRC already holds some of the information requested in the Property Schedule and the Legal Fees Schedule. However, it seems to me that any duplication would be limited to certain information relating to one or two of the Property Transactions and the requirement to produce all the information would ensure that HMRC have a complete understanding of the relevant transactions.
In relation to the Legal Fees Schedule, HMRC submitted that GPL had treated the legal fees as capital expenditure and disallowed them when calculating its corporation tax which resulted in a capital loss which had yet to be crystallised. HMRC contended that the legal fees were not incurred in relation to any capital assets held by GPL and, further, GPL did not appear to have carried on a trade of buying and selling properties. HMRC’s position was that it was questionable whether the legal fees could be properly regarded as having been incurred for the purposes of GPL’s trade and their tax treatment was still to be determined.
HMRC contended that there were at least four possible tax treatments with regard to the legal fees:
they formed part of the property remuneration package and should have been taxable as employment income under section 62 ITEPA;
they were an employment-related benefit taxable under section 203 ITEPA;
they should have been treated as a distribution of profits by GPL to Mr Cardwell, within the meaning of section 1000 CTA 2010; or
they were a beneficial loan from GPL to Mr Cardwell from his director’s loan account.
In the first and second scenarios above, there may have been an under-assessment of tax and NICs and an unclaimed allowable corporation tax deduction. In the third scenario, no corporation tax deduction would be allowable and in the fourth, GPL’s tax position would be subject to tax under section 455 CTA 2010.
HMRC stated that they had not come to any concluded view on the correct tax treatment of the legal fees. They contended that the Legal Fees Schedule would enable them to have a better understanding of both the nature, purpose, dates and amount of fees spent and also the intended structure of the transactions. The information would allow HMRC to determine whether there had in fact been an underassessment of income or corporation tax and/or non-compliance with the relevant PAYE Regulations and, if so, the extent of such underassessment and/or non-compliance.
In relation to the Legal Fees Schedule, GPL accepted that the description of the legal fees as capital in the profit and loss account to which they were debited for each period in which they arose was incorrect. GPL further accepted that, to the extent that the debits caused an overdrawn director’s loan account, then GPL could be liable to tax under section 455 CTA 2010 and that the liability was still undetermined. GPL accepted that the inaccuracies were the result of a failure to take reasonable care rather than deliberate behaviour. GPL contended that, as a result, HMRC could only recover any tax relating to the legal fees as far back as the accounting period ending 31 October 2016. GPL submitted that the Legal Fees Schedule should not extend beyond that period back to the period ending 31 October 2007. HMRC contended that, as the relevant transactions dated from 2007, it was reasonable for them to suspect that there may be additional tax liabilities going back to the accounting period ending 31 October 2007.
HMRC submitted that they had not reached a conclusion regarding GPL’s motive or purpose in transferring the properties themselves which is why they were seeking further information in relation to the Property Transaction and the legal fees. HMRC stated that the errors in how the legal fees were dealt with in the accounts and CTSA returns were at least careless but, as they were not in possession of the full facts, they needed the further information to determine whether the behaviour was deliberate. HMRC submitted that the Property Schedule and the Legal Fees Schedule would enable them to determine whether GPL had acted deliberately or not. If any inaccuracies in GPL’s CTSA tax returns were found to be due to deliberate behaviour by GPL then HMRC would be able to raise the necessary assessment for tax and penalties.
I accept HMRC’s submissions and evidence on this issue. There is no dispute that it is possible that GPL has not accounted for tax correctly as a result of the legal fees being debited to Mr Cardwell’s director’s loan account. It also seems clear to me that there are uncertainties about whether GPL had applied the correct tax treatment to the Property Transactions. In those circumstances, I do consider that the request for the Property Schedule and the Legal Fees Schedule is reasonable. Accordingly, I find that the Property Schedule and the Legal Fees Schedule are reasonably required for the purposes of checking the tax position of GPL during the relevant accounting periods.
Condition B
Where the documents or information relate to a period that is not subject to an enquiry, HMRC must satisfy Condition B in paragraph 21(6) of Schedule 36 FA 2008. Condition B in this case means that HMRC must have reason to suspect that, as regards GPL, an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed. Having made my findings above in relation to the issue of whether the Property Schedule and the Legal Fees Schedule are reasonably required, I can deal with this issue fairly briefly.
In relation to the Legal Fees Schedule, as stated in [34] and [36] above, Officer Duff considered that there may have been an under-assessment of tax and GPL accepted that an amount that ought to have been assessed to corporation tax for the chargeable period may not have been assessed. It follows that there is no dispute that Condition B was met in relation to the Legal Fees Schedule and I say no more about it.
In relation to the Property Schedule, GPL contended that, as HMRC had conceded that they had not reached a conclusion regarding the correct tax treatment of the Property Transactions in the period under enquiry (accounting period ending 31 October 2016), there was no reason to suspect that GPL may have under-assessed or underpaid tax and/or claimed excessive relief in the other periods. GPL submitted that, accordingly, Condition B was not satisfied in relation to the Property Schedule.
HMRC accept that the correct tax treatment has yet to be determined in respect of the period under enquiry. However, as stated in [27] above, Officer Duff suspected that an amount that ought to have been assessed to relevant tax, such as NICs or corporation tax, for the chargeable periods may not have been assessed. HMRC submitted that, if the Property Transactions should have been treated as a distribution, GPL’s allowable expenses should have been less and its liability to corporation tax correspondingly greater. Similarly, if the Property Transactions should have been taxed as earnings, GPL should have paid more NICs. HMRC contended that, as the Property Transactions had been treated in the same manner in the earlier accounting periods, it was reasonable for HMRC to suspect that there may be additional tax liabilities in those earlier periods and, accordingly, Condition B was satisfied.
Accordingly, I find that HMRC had reason to suspect that, as regards GPL, an amount that ought to have been assessed to relevant tax for the accounting periods covered by the Information Notice may not have been assessed.
Disposition
For the reasons set out above, I dismiss GPL’s appeal and confirm the Information Notice as far as it relates to the Property Schedule and the Legal Fees Schedule.
I direct that GPL shall provide the information and documentation set out in the Property Schedule and the Legal Fees Schedule to HMRC within 56 days from the date of release of this decision.
Right to apply for permission to appeal
This document contains full findings of fact and reasons for the decision.
Paragraph 32(5) of Schedule 36 FA 2008 provides that the FTT’s decision on an appeal against an information notice under paragraph 29 of Schedule 36 is final and, therefore, there is no right of appeal in respect of this decision.
The Tribunal apologises to the parties for the delay in dealing with this appeal on the papers. The judge originally allocated to deal with it was unavoidably absent from work for extended periods for different reasons. Unfortunately, as the judge was expected to return and be able to pick up this matter, no other judge was allocated to deal with it. When it became clear that the case would have to be reallocated, it was not prioritised as it should have been.
JUDGE GREG SINFIELD
CHAMBER PRESIDENT
Release date: 24th MAY 2024
APPENDIX
RELEVANT LEGISLATION
Extracts from Schedule 36 Finance Act 2008
Paragraph 1 of Schedule 36 FA 2008 provides:
“(1) An officer of Revenue and Customs may by notice in writing require a person (‘the taxpayer’)
(i) to provide information, or
(ii) 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.”
Paragraph 21 of Schedule 36 FA 2008 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.
(4) Condition A is that a notice of enquiry has been given in respect of-
(a) the return, or
(b) a claim or election (or an amendment of a claim or election) made by the person in relation to the chargeable period in respect of the tax (or one of the taxes) to which the return relates (‘relevant tax’),
and the enquiry has not been completed so far as relating to the matters to which the taxpayer notice relates.
…
(6) Condition B is that an officer of Revenue and Customs has reason to suspect that, as regards the person,
(a) an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed,
(b) an assessment to relevant tax for the chargeable period may be or have become insufficient, or
(c) relief from relevant tax given for the chargeable period may be or have become excessive.
(7) Condition C is that the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking the person’s position as regards any tax other than income tax, capital gains tax or corporation tax.
(8) Condition D is that the notice is given for the purpose of obtaining any information or document that is required (or also required) for the purpose of checking the person’s position as regards any deductions or repayments of tax or withholding of income referred to in paragraph 64(2) or (2A) (PAYE etc).
(9) In this paragraph, references to the person who made the return are only to that person in the capacity in which the return was made.”
Paragraph 29 of Schedule 36 provides that:
“(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.”
Paragraph 32 of Schedule 36 provides:
“(3) On an appeal that is notified to the tribunal, the tribunal may–
(a) confirm the information notice or a requirement in the information notice,
(b) vary the information notice or such a requirement, or
(c) set aside the information notice or such a requirement.
(4) Where the tribunal confirms or varies the information notice or a requirement, the person to whom the information notice was given 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) Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007 a decision of the tribunal on an appeal under this Part of this Schedule is final.
(6) Subject to this paragraph, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under this Part of this Schedule as they have effect in relation to an appeal against an assessment to income tax.
…”
Paragraph 58 defines various terms in Schedule 36 including the following:
“‘checking’ includes carrying out an investigation or enquiry of any kind,
‘the Commissioners’ means the Commissioners for Her Majesty’s Revenue and Customs,
‘document’ includes a part of a document (except where the context otherwise requires),
‘HMRC’ means Her Majesty’s Revenue and Customs,
‘tribunal’ means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal.”
Paragraph 62 of Schedule 36 FA 2008 relevantly provides that:
“… 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 Act, or
(b) any other enactment relating to tax.”
Paragraph 64 of Schedule 36 FA 2008 defines “tax position” as including:
“(1) … the person’s position as regards any tax, including the person’s position as regards–
(a) past, present and future liability to pay any tax,
…
(4) References in this Schedule to a person's tax position are to the person's tax position at any time or in relation to any period, unless otherwise stated.”