Case: Information and documents were reasonably required

[2018] UKFTT 0678 (TC)

Judge Jonathan Cannan

Decision released 16 November 2018

Procedure – Information Notices – FA 2008, Sch. 36 – Documents and information required – Whether statutory records – Not satisfied - Whether reasonably required – Yes - Appeal dismissed.

Holmes & Anor [2018] TC 06824

Summary

Carol Holmes and Andrew Knight (the appellants) had submitted tax returns for 2015-16 showing identical income from employment and dividends from UK companies. As part of HMRC’s enquiries into the returns they issued information notices pursuant to FA 2008, Sch. 36. The notices required the appellants to provide personal bank statements, details of investment accounts and explanations as to movements of capital and sources of deposits in relation to the investment accounts.

The appellants appealed against the notices on the grounds that:

the documents and information required were not statutory records; and

the documents and information were not reasonably required to check their tax positions.

HMRC submitted that the documents and information required were part of the appellants’ statutory records and as such under para. 29 there was no right of appeal against the information notices. In the event that the documents and information were not statutory records HMRC maintained that they were reasonably required for the purpose of checking the appellants’ tax positions.

The FTT noted that before deciding whether the documents and information required were part of the appellants’ statutory records, there was a prior issue as to who had the burden of proof in relation to this aspect of the appeal, i.e. did HMRC have to show that the documents and information were statutory records, or did the appellants have to show that they were not. The FTT did not reach a firm conclusion on this, but its provisional view was that it was for HMRC to make out a case that the documents and information being requested were statutory records.

In the absence of a finding that the appellants’ tax returns correctly identified all their sources of income (which it was not for the FTT to determine in an information notice appeal), the FTT was not satisfied on the basis of the material before it that the documents and information were statutory records.

On the issue of whether the documents and information were reasonably required to check the appellants’ tax returns, the FTT decided to take the same approach as that taken in Mathew [2015] TC 04342 and assumed, in the first instance and for these purposes only, that there was a burden on HMRC to show that the documents and information were reasonably required.

HMRC provided evidence that there was reason to believe that the appellants’ tax returns may not have shown their total income. The evidence was material from third parties to suggest that the appellants’ level of personal expenditure was not matched by their declared income and they had made capital introductions to their company. The appellants submitted that they had used historic income and family money.

The FTT concluded that the documents and information were reasonably required by HMRC to check the appellants’ tax returns and the information notices were not disproportionate.

The FTT accordingly dismissed the appeals.

Comment

This decision highlights the difficulties faced by the FTT when deciding whether information and documents required by an information notice are statutory records. However, in this case there was no need to make a decision on that because it found that the information and documents were reasonably required by HMRC for the purpose of checking the appellants’ tax returns.

For commentary on information notices, see the Direct Tax Reporter at ¶186-550ff..

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