[2011] UKFTT 84 (TC)

TC00961

Appeal reference: TC/2010/03792

Closure notice – application on behalf of the Appellant – restaurant business – basis of application that enquiry had become prolonged and protracted – series of Schedule 36 notices – requests for review – appeals – late provision of information and documentation – absence of explanation for lateness – reasonable grounds for enquiry to be kept open – application unsuccessful

FIRST- TIER TRIBUNAL
TAX

   	   	  WAI YAU CHAN				Appellant

- and -

				    THE COMMISSIONERS FOR
			HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Alistair Devlin (Judge)

Sitting in public in Belfast on 19 November 2010

Mr. Michael Feng, of Feng & Co., for the Appellant

Mr. P Donnelly, inspector of taxes, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

Introduction

1.	This matter comes before the Tribunal in the form of an application on the part of the Appellant for the issue of a Closure Notice pursuant to section 28A of the Taxes Management Act 1970 [‘TMA’].

2.	The factual background to the current application is as follows. The Appellant is the sole proprietor of a restaurant business situate at 16, Main Street, Moira, and known as the Bauhinia Palace Restaurant. On 27 November 2009 the Respondents opened an enquiry into the Appellant’s Self Assessment Tax Return for the year ended 5 April 2008. The period covered by the Return was the period between 1 February 2007 and 31 January 2008. The Return specified the Appellant’s income by way of United Kingdom bank interest to be £98.00.

3.	On 21 December 2009, a meeting took place by arrangement at the Appellant’s business premises. The Appellant and his wife were present, together with the Appellant’s then accountants, the firm of Turner Evans. It was common case that certain documents were provided upon request to the Respondents, and that it had also been agreed that others were to follow. After the meeting had taken place on 21 December 2009, the Respondents prepared and circulated draft minutes of the matters discussed during the course of the meeting. These draft minutes were signed both by the Appellant and also by his then representative, Mr Evans of Turner Evans. In the signed minutes, it was recorded that Mr Evans agreed to forward all outstanding information.

4.	By letter dated 19 January 2010 the Respondents wrote to Messrs Turner Evans requesting certain additional specified documentation and information. The material and information was asked to be provided by 12 February 2010. The Respondents sought each of the following:

. The business bank account statements
. All personal bank and building society account statements, to include ISAs, for both Mr and Mrs Chan
. Details of how sales £194,828 determined
. Analysis of drawings £11,279
. Cash account
. Capital allowances computation
. Reconciliation of the purchase of the properties 19 The Brambles, 18 Linen 
  Green, 20 Old Forge and College Heights. Purchase price, deposit, mortgage,   
  legal fees, furnishings etc. 

5.	All of this documentation, and all of this information the Respondents maintained had been raised at the meeting on 21 December 2009.

6.	By mid February 2010, the Appellant had changed his representative, and was now being represented by Mr Michael Feng of Feng & Co.

7.	On 23 April 2010, after some further correspondence between the Respondents and the firm of Feng & Co., the Respondents issued and served upon the Appellant a notice pursuant to Paragraph 1 of Schedule 36 to the Finance Act 2008. On 26 April 2010, a revised Schedule 36 notice was issued and served upon the Appellant to replace the one issued on 23 April. In the notice, the Respondents sought some of the material previously specified in the letter dated 12 February 2010, but also sought additional material and information.

8.	By letter dated 18 May 2010 the Appellant through his representative appealed the Schedule 36 notice, and also requested its review by an independent officer.  Subsequently, by means of a review letter dated 22 July 2010 a certain Mrs C Warner of the Respondents’ Appeals & Reviews Unit concluded that although the information requested was, in her assessment, reasonably required for the purpose of the check, the information notice should be cancelled for the following reasons, namely:

•	The information notice did not distinguish clearly between statutory records and other documents and information.

•	A request for Mrs Chan’s bank/building society statements/books was incorrect as these could not be obtained.

•	A request for details of sales £194,828, details of drawings £11,279 & the cash account did not make it clear to the Appellant the exact nature of the document or information required to comply with the request.

9.	A fresh and revised Schedule 36 notice was issued and served upon the Appellant on 13 August 2010 requiring the provision of information and documentation.

10.	By letter dated 10 September 2010 the Appellant’s representatives maintained in respect of the new Schedule 36 notice that it was ‘a continuing attempt to carry on fishing for irrelevant information and documents, and outside the 2008 enquiry year. Your request is not reasonable and not necessary for checking my client’s 2008 tax return’. The Appellant’s representatives also sought at the same time to appeal against the latest Schedule 36 notice and requested a review of it by an independent officer and not by Mrs C Warner the original review officer.

11.	Earlier, by Notice of Appeal dated 23 April 2010, the Appellant had already made application for the issue of a Closure Notice. The grounds of appeal were stated to be as follows:

’27 November 2009 HMRC opened 2008 Tax Return s9A TMA 1970

December 2009 HMRC met the Appellant and have received all the business records [meal tickets, business expense receipts, business statements and cheque stubs and paying books].

23 April 2010 the Appellant applies s28A TMA 1970 A Closure Notice immediately’.

12.	The closure notice hearing was scheduled before the Tribunal on 19 November 2010. In the meantime, on 5 November 2010, a letter was issued to the Appellant by the further review officer designated to consider a review of the further Schedule 36 notice as issued to the Appellant on 13 August 2010. That review letter concluded that the request for documents should be amended to exclude a specific category of document sought, and that the contents of the schedule should be amended accordingly, but that subject to that amendment the remainder of the notice should be upheld.

13.	By letter dated 8 November 2010, as sent by them to the Tribunal Office, the firm of Feng & Co. on behalf of the Appellant then indicated that they wished to appeal against the review letter dated 5 November 2010 and its contents, and enquired if that appeal could also be held on 19 November 2010.

Matters to be addressed at this hearing  

14.	At the commencement of the hearing on 19 November 2010, the Tribunal specifically enquired of the Respondents if they were in a position by consent to deal with the issue of the Appellant’s recent appeal against the issue and contents of the review letter dated 5 November 2010. The Respondents indicated that they were not in a position to deal with that appeal. Accordingly, and with the consent of the Appellant and his representatives, the hearing dealt only with the Appellant’s application for the issue of a closure notice.

The Appellant’s case

15.	The Appellant gave oral evidence himself before the Tribunal. He also confirmed the accuracy of a signed written statement of evidence dated 18 November 2010. In that statement, the Appellant stated that whereas in the 2008 Tax Return as submitted by his then representative to the Revenue, it had been stated that the Appellant’s income by way of United Kingdom bank interest had been £98, this had been a ‘mistake’. The Appellant apologised for the mistake, and stated that his bank interest had amounted to £649.39. The Appellant attached bank statements confirming those amounts.

16.	Of the meeting held on 21 December 2009, the Appellant claimed that during that meeting he had given to the Respondents’ Inspector of Taxes Mr Boles all of his business income and expenditure records. He added that he saw that his then representative Mr Tom Evans had given Mr Boles some other papers, but he did not ask what those other papers were.

17.	The Appellant and his representative said of the enquiry that it had become prolonged and protracted. They sought to specifically criticise the fact that the enquiry had, as they perceived it, by means of a series of disputed and misconceived Schedule 36 notices sought to access information irrelevant to the 2008 Tax Return enquiry, and submitted that the enquiry needed to be brought to an end.

The Respondents’ case

18.	Mr Boles, and Inspector of Taxes, gave oral evidence before the Tribunal, and he also confirmed the accuracy of the contents of an undated witness statement submitted from him on behalf of the Respondents. He rejected the suggestion that the enquiry had become either prolonged or protracted, as alleged. He referred specifically to the meeting which took place on 21 December 2009, and to the fact that at that meeting the Appellant and his then representative, Mr Tom Evans had confirmed that all outstanding information and material would be made available. Mr Boles also made express reference to the signed minute of that meeting in which the Appellant and his former representative had confirmed after the meeting had taken place that ‘all outstanding information’ would be forwarded. Mr Boles also drew attention to the fact that the Appellant had only very recently confirmed that the amount of U.K. bank interest made reference to in the 2008 Tax Return had been a mistake, and that only now were bank statements being provided by the Appellant to confirm this now admitted inaccuracy. Mr Boles also stressed that what he had required was the supporting information and documentation to enable the return to be checked.

19.	Mr Boles went on to explain that the system whereby transactions had been recorded within the Appellant’s business operations had been by way of a taking book. Till rolls, he claimed, had not been used, on the basis that they were, so it was claimed too expensive. The complete absence or unavailability of till rolls, and what Mr Boles sought to claim had been a lack of cooperation since the change of identity in terms of the Appellant’s representative in February 2010 had not assisted in this regard. Mr Boles maintained that he continued to have concerns about the accuracy of the returns as submitted.

Decision

20.	The Tribunal arrives at its decision having paid particular reference to the wording of section 28A [6] of the Taxes Management Act 1970, which provides as follows:

              ‘The Commissioners hearing the application shall give the direction
               applied for unless they are satisfied that there are reasonable grounds
               for not issuing a closure notice within a specified period’.

The role of the Commissioners here being referred to is now of course vested in this Tribunal. 

21.	On the issue of the closure notice, the Tribunal is fully satisfied on the facts of the case, and on the basis of the evidence adduced before it, that such a closure notice as is sought by the Appellant should not be directed by the Tribunal. The Tribunal is satisfied that there are reasonable grounds for not issuing a closure notice at this stage. These grounds can be summarised as follows.

22.	The Tribunal is satisfied that both at the meeting on 21 December 2009, and thereafter, the Appellant and his representative had confirmed to the Respondents upon request that all outstanding information would be forwarded. That this was not done appears at least in part to have been as a result of a change in the identity of the Appellant’s representation.

23.	The Appellant does certainly appear to have changed his representation with effect as and from mid February 2010, a change which the Appellant was clearly entitled to bring about should he wish so to do. In addition, the newly instructed firm of Feng & Co. do appear in the period after their engagement to have adopted a generally more robust approach to the line of enquiries being pursued by the Respondents than ever did their predecessors. Furthermore, this more robust approach itself appears to have given rise to a certain amount of additional delay. However, neither the nature nor the extent nor the consequences of this delay is sufficient in the assessment of the Tribunal to render the enquiry either prolonged or protracted as alleged.

24.	This hearing was not concerned with any appeal against the issue of any Schedule 36 notice. That is for another day. There have been a series of such Schedule 36 notices issued in connection with this enquiry. These have successively been made by the Appellant the subject of requests made on his behalf for these notices to be reviewed, and the notices also have been made the subject matter of at least one appeal to this Tribunal. Moreover, the various requests for review of these notices have hitherto been at least substantially successful from the Appellant’s perspective. The undertaking of these reviews has clearly taken some time, and this has added to some extent to the delays being encountered in connection with the current enquiry. However, once again the Tribunal is satisfied that neither the nature nor the extent nor the consequences of any of these delays has been sufficient in its assessment to render the enquiry either prolonged or protracted as alleged. No specific prejudice was alleged or identified.

25.	The fact that the Appellant has only recently admitted that a mistake had indeed been made in the amount recorded in the 2008 return in respect of United Kingdom bank interest income does not assist the Appellant. Nor does the fact that it was only either at or shortly before the commencement of this hearing on 19 November that bank statements evidencing this interest amount were finally provided by the Appellant to the Respondents. The Tribunal is satisfied that this is information which Mr Boles on behalf of the Respondents had been seeking for some time. No explanation was provided to the Tribunal as to why it had taken so long for this information and supporting documentation to be made available.

26.	For the reasons set out above, the Tribunal is entirely satisfied that it would be entirely inappropriate for the issue of a closure notice to be directed, in that there remain issues into which the Respondents reasonably wish to continue to enquire. The Tribunal is fully satisfied on the basis of the documentation, information and evidence presented before it that there are reasonable grounds for permitting the current enquiry to be kept open. The application for a closure notice is unsuccessful. The Tribunal makes no order as to costs.

27.	The Appellant’s outstanding appeal against the Schedule 36 notice, as issued on 13 August 2010, and as amended on review, should now be listed for hearing and determination as soon as possible.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

ALISTAIR DEVLIN
TRIBUNAL JUDGE
Release Date: 25 January 2011