Khan & Ors v Revenue & Customs [2010] UKFTT 19 (TC) (21 December 2009)

[2010] UKFTT 19 (TC)

TC00334

Appeal number TC/2009/13484

Applications for directions to close enquiry into tax returns – Whether possible to give directions – Applications dismissed – section 28A Taxes Management Act 1970 & paragraph 33 schedule 18 Finance Act 1998

FIRST-TIER TRIBUNAL

TAX

(1) SHAHZAD HAROON KHAN

(2) FASAL HAROON KHAN

(3) QAISER HAROON KHAN

(4) SOHAIL SHAHZAD

(5) XTEC COMMUNICATIONS LIMITED

(6) PAK (UK) TV LIMITED

(7) XTEC RETAIL LIMITED

(8) NEWTRON MARKETING LIMITED

(9) ALMA COMMUNICATIONS LIMITED

(10) BRIDGE WOODS EXPORTERS LIMITED

(11) GLOBAL 2000 CORPORATION LIMITED

(12) PRIME PLUS LIMITED Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (income tax/corporation tax) Respondents

TRIBUNAL: John Brooks (Judge)

James Midgley (Member)

Sitting in public in London on 8 December 2009

Milan Patel of King & King Chartered Accountants for all of the Appellants

Nick Branigan of HM Revenue and Customs for the Respondents

DECISION

1. The Appellants listed above apply to the Tribunal for a direction requiring HM Revenue and Customs (“HMRC”) to “give a closure notice” to complete an enquiry in respect of that Appellant within a specified period under section 28A of the Taxes Management Act 1970 (“TMA”) or its corporation tax equivalent, paragraph 33 schedule 18 Finance Act 1998.

2. Although each application was originally treated individually and given its own appeal number, on 14 October 2009 the Tribunal directed that the applications of Shahzad Haroon Khan, Fasal Haroon Khan, Qaiser Haroon Khan, Sohail Shahzad, Xtec Communications Limited, Pak (UK) TV Limited, Xtec Retail Limited and Newtron Marketing Limited, the first eight Appellants who are all represented by Mr Patel of King & King Chartered Accountants, “shall proceed together under Tribunal Reference TC/2009/12484 and be heard together at the same time by the same Tribunal.”

3. As the remaining Appellants, Alma Communications Limited, Bridge Woods Exporters Limited, Global 2000 Corporation Limited and Prime Plus Limited, were also represented by Mr Patel we directed that the applications of these Appellants also be heard together with those of the first eight Appellants under Tribunal Reference TC/2009/12484.

Preliminary Issue

4. At the commencement of the hearing Mr Branigan submitted, as a preliminary issue, that the Tribunal should dismiss the applications of all of the Appellants other than Qaiser Haroon Khan, Fasal Haroon Kahn, Shahzad Haroon Khan (who are brothers) and Xtec Communications Limited who had each been given notice of an enquiry under s 9A TMA (or the corporation tax equivalent). He contended that under the legislation a closure notice could only be given where a taxpayer had been given notice of an enquiry into a tax return and in the case of the remaining Appellants the investigations into their respective tax affairs had not been undertaken by way of notice of an enquiry but in accordance with HMRC’s Code of Practice 9 (“COP 9”).

5. We were referred to the decision of the Special Commissioner (Dr David Williams) in Lee v HMRC [2009] STC (SCD) where he said at [8 – 9]:

Section 28A applies only to valid enquiries under section 9A. It does not apply to other forms of investigation. In particular, it does not apply to investigations related to the potential use of section 29 TMA (assessment where loss of tax discovered). It is worth noting that section 29 makes provision to avoid an overlap between investigations linked with that section and section 9A enquiries. This emphasises that the two are separate. Section 29(3) to (7) limits the powers of an Officer under that section where the taxpayer has delivered a return under section 8. One limit is that the section 29 powers can only be used after either the "window" under section 9A has passed in respect of that tax return or the Officer has closed an enquiry into that tax return: section 29(5).

It follows that:

(a) An Officer has no power to act under section 9A until a self-assessment return has been made by a taxpayer. Any investigation before a return is made must be authorised by other powers.

(b) I cannot direct an Officer to give a notice of enquiry. He or she is at liberty to do so at any time within the "window" following the delivery of any self-assessment return.

(c) I have no power under a section 28A application to direct the closure of an investigation that is not a section 9A enquiry.

(d) When a valid section 28A application is made, I have a duty to direct the closure of a properly notified enquiry into a self-assessment return unless satisfied that there are reasonable grounds for not doing so.

6. For the Appellants Mr Patel contended that letters, dated 11 March 2008, from HMRC to Shahzad Khan, Qaiser Khan, and Fasal Khan, which refer to Xtec Communications Limited, PAK (UK) TV Limited, Prime Plus Limited, Newtron Marketing Limited, Alma Communications Limited, Xtec Retail Limited, Bridge Wood Exporters Limited and Global 2000 Limited, should be construed as being s 9A notices relying on Lee v HMRC where the Special Commissioner said at [4]:

There is no set form provided in law for a section 9A notice. It is required only that the notice is in writing to the taxpayer and that it meets the legislative requirements noted above. In my judgment section 9A(1) requires that the notice indicate clearly that the Officer is giving notice of his or her "intention to" "enquire into" one or more returns. No precise words have to be used, but that intention must be clear. While it may be best practice always to refer specifically to section 9A (or the corporation tax equivalent) and to the specific return to be the subject of enquiry, that is not necessary in law.

Decision on the Preliminary Issue

7. The Tribunal does not have the power under a s. 28A TMA or paragraph 33 schedule 18 Finance Act 1998 to direct the closure of an investigation unless the enquiry is commenced by way of a s. 9A notice or its corporation tax equivalent.

8. Although as the Special Commissioner said in Lee “there is no set form provided for in law for a section 9A notice” he continued to say, at [4]:

… entirely general language in a letter may not be adequate notice engaging section 9A. In particular, an indication of relevant dates is needed because section 9A(2) provides a specific "window" with regard to any return. The section expressly provides for a limited time in which an enquiry may be started. And it does not empower a general investigation into a taxpayer's affairs. The consequence to HMRC, if proper language is not used in a section 9A notice, is that HMRC may later have to establish that the far stricter requirements of section 29 TMA are met.

9. The letters of 11 March 2008 to which we were referred are written in general terms and provide no indication of relevant dates and therefore do not relate to specific “windows” with regard to any return.

10. We therefore find that the letters of 11 March 2008 are not s. 9A notices or notices made under paragraph 24 schedule 18 Finance Act 1998, their corporation tax equivalent, and consequently as we do not have the power to give a direction to close the investigations we dismiss the applications of Pak (UK) TV Limited, Xtec Retail Limited, Newtron Marketing Limited, Alma Communications Limited, Bridge Woods Exporters Limited, Global 2000 Corporation Limited and Prime Plus Limited.

11. With regard to the application by Sohail Shahzad, as he had not submitted a tax return it is not possible for a s. 9A notice to have been given. Therefore, as the Tribunal cannot direct the closure of an enquiry in the absence of such a notice his application is also dismissed.

Remaining Applications for Closure Notices

12. It was agreed that s. 9A notices had been given to Shahzad Haroon Khan, Fasal Haroon Khan, Qaiser Haroon Khan and that Xtec Communications Limited had received notice of an enquiry under paragraph 24 schedule 18 Finance Act 1998. As such it was not disputed that they were entitled to apply to the Tribunal for closure notices.

13. In respect of Qaiser Haroon Khan, Mr Patel contended that a closure notice was appropriate as HMRC had not requested any information from his client since January 2009. Mr Patel argued that Qaiser Khan was being penalised because of an investigation into Xtec Communications Limited, his brothers company. Mr Patel explained that Qaiser Khan was not an employee of Xtec Communications Limited but that he had received benefits in kind from the company.

14. Similarly in respect of Fasal Haroon Khan, the sales director of Xtec Communications Limited, Mr Patel argued that HMRC had not requested any information to progress the investigation since a meeting in June 2009 and we should therefore direct that the enquiry be closed.

15. His argument in respect of both Shahzad Khan, a director and controlling shareholder of Xtec Communications Limited and Xtec Communications Limited itself was also along similar lines, HMRC had not requested information from them and consequently a closure notice was necessary to end the investigations.

16. In response Mr Branigan referred us to the questions set out in the appendix to COP 9 inviting full disclosure of the Appellants direct and indirect tax affairs, the Appellants answers to these questions and letters from HMRC to Shahzad Haroon Khan, Qaiser Khan and Fasal Khan, dated 21 January 200, stating that their disclosure “does not accord with information held” informing them that HMRC would “conduct its own investigations” into the “business and private side affairs” of each of them in accordance with COP 9 which applies in cases where HMRC suspect serious fraud and gives taxpayers an opportunity to fully disclose all irregularities in their tax affairs.

17. Mr Branigan also referred us to an assessment issued to Xtec Communications Limited for undeclared VAT for the period 1 May 2006 to 28 February 2009. The total amount of the under declaration is £2,835,103.00 to which interest has yet to be added. He submitted that this could have a significant effect on the company’s direct tax position and it was necessary for the investigation to continue for this to be determined.

18. As Xtec Communications Limited is a family run close company (as are the other companies whose applications we dismissed as a preliminary issue) Mr Branigan submitted that the tax affairs of the directors and shareholders are indelibly linked with those of the companies and should the investigation identify any additional corporate liabilities there may well be consequential personal liabilities arising and it would be inappropriate and premature for the corporate and individual investigations to be closed whilst the investigation into Xtec Communications Limited continues.

Decision

19. We are required to give the directions applied for under s 28A TMA and paragraph 33 schedule 18 Finance Act 1998 unless HMRC has satisfied us that there are reasonable grounds for not issuing a closure notice within a specified period.

20. Having considered the evidence and submissions of the parties we are satisfied that there are reasonable grounds for not issuing a closure notice in respect the s. 9A enquiries into the 2006-07 tax returns of Shahzad Haroon Khan, Fasal Haroon Khan, Qaiser Haroon Khan and paragraph 24 enquiry into the return of Xtec Communications Limited. As such we have not issued any directions and dismiss the applications.

21. However, this does not prevent a further application to the Tribunal by any of the Appellants if it is considered appropriate to do so at some time in the future, for example, following the resolution of the VAT and related direct tax issues.

22. The Appellants have a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. 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.

First-tier Tribunal (Tax)