A tax tribunal has rejected an appeal by a business owner who faced a tax investigation over discrepancies between his earnings and tax returns for his delivery company
In Matharu  UKFTT 0528 (TC), HMRC identified that the company statements of the appellant, Mr Bhapinder Matharu, showed large cash movements between his company, Matharu Delivery Service Ltd and his personal bank accounts, while company wages exceeded the director’s P60 and dividends.
There were also other amounts, which were not accounted for correctly, that had been transferred between the company and betting companies.
HMRC launched an investigation in November 2017 based on the grounds that it believed Matharu’s self-assessment tax return for 2015/16 may be inaccurate. The letter included a schedule of information and documents needed to carry out HMRC’s check, including evidence to support the dividends of £23,000 received as well as a P60 to verify the £8,786 received as pay from employment.
HMRC issued an information notice to the appellant under Finance Act 2008 (FA 2008), Sch 36, para 1 demanding the appellant produce all private bank and/or building society accounts.
Matharu partly complied with the notice but failed to supply all private bank and/or building society account statements, cheque book stubs and deposit book counterfoils.
While carrying out a review of Matharu’s company bank statements, HMRC found that Matharu had taken out a director’s loan of £71,150 from his company and had repaid £48,950. However, under the heading of ‘wages’ the company had paid Matharu £40,060 whereas his P60 showed a salary of £8,786.76.
A dividend voucher indicated Matharu had received a dividend of £23,000. In addition, the summaries showed that the company had paid Betfred £158,000 and a further £26,000 to 32Red. He had also received £153,360 from Betfred.
The appellant appealed against the notice on the main ground that Condition B in FA 2008, Sch 36, para 21(6) had not been met.
Condition B required that HMRC had reason to suspect that an amount that ought to have been assessed may not have been assessed.
When the appeal went to the First Tier Tribunal (FTT), the appellant argued that it was quite normal for small companies to describe withdrawals by a company director as ‘wages’.
Matharu argued that his case reflected the decision in Betts  TC 02824, which the FTT rejected.
The tribunal said: ‘It is clear, in our judgment, that in order for condition B to be met, there has to be reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed as regards the appellant.
‘That is the plain and ordinary meaning of paragraph 21(6)(a) and we see no reason to go behind that. Seeking information or documents in order to meet condition B is simply the wrong way round in our judgment.'
In Betts, HMRC had agreed that none of the information held by HMRC either singly or taken together, gave reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed.
The FTT found that Matharu did not provide any evidence to support his assertion that what the company described as wages covered more than salary. As such, HMRC was entitled to consider the description ‘wages’ at face value and thus had reason to suspect that Matharu’s tax return might be wrong.
Betts was distinguishable from this case as in this instance HMRC clearly had evidence which gave them ‘reason to suspect’ in accordance with condition B as laid down in FA 2008, Sch 36, para 21(6).
The FTT agreed that HMRC had ‘reason to suspect’ an underassessment and held that condition B had been met at the time the information notice was issued. Accordingly, the appeal was dismissed.