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	United Kingdom Special Commissioners of Income Tax Decisions
You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> Lee & Anor v Revenue & Customs [2008] UKSPC SPC00715 (07 November 2008) URL: http://www.bailii.org/uk/cases/UKSPC/2008/SPC00715.html Cite as: [2008] UKSPC SPC715, [2008] UKSPC SPC00715, [2009] STC (SCD) 1, [2008] STI 2675

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Spc00715

Income tax and corporation tax – self-assessment – enquiry into return – section 28A Taxes Management Act 1970 - scope of power to direct that an enquiry be closed – whether power should be exercised – decision on own facts

THE SPECIAL COMMISSIONERS

(1) KIT CHEUNG LEE

(2) RUI YUN LEE

(3) GOLDEN POOL (CAMBOURNE) LTD Appellants

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Special Commissioner: DR DAVID WILLIAMS

Sitting in public in London on 30 October 2008

Michael Feng, accountant, for the Appellants

Mike Faulkner and Jenny Langley, officers of Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008


 


DECISION

1. There are three linked sets of applications before me. They relate to Mrs Lee, her husband, and a company of which I am told she is the only shareholder. I am asked to require the closure of all current enquiries being made by Her Majesty's Revenue and Customs ("HMRC") in respect of each of taxpayers for each of the relevant tax years from 1998 to 2007. The applications are made under section 28A of the Taxes Management Act 1970 ("TMA") in respect of Mrs and Mr Lee and under the equivalent provision for corporation tax (paragraph 33 of Schedule 18 to the Finance Act 1998 ("Schedule 18")) for the company. Most of these applications are misconceived. Before I deal with the one application that I find properly made, I must strip away the matters outside the scope of my powers.

Enquiries: the law

2. All individual taxpayers are required, if asked to do so, to complete self-assessment tax returns for any tax year in accordance with section 8 TMA. An officer of Revenue and Customs ("Officer") may, under section 9A TMA, start an enquiry into any self-assessment income tax return submitted to HMRC by a taxpayer. (The directly equivalent power for corporation tax and companies is in Schedule 18, paragraph 32. I refer only to the income tax provisions below, as those for corporation tax are direct equivalents and are in Schedule 18).
3. An Officer wishing to conduct an enquiry into a self-assessment tax return must give notice to the taxpayer that he or she intends to do this. He or she can give notice only within a "window" of time allowed by section 9A(2) TMA. There are no preconditions that the Officer must meet when deciding to make an enquiry. But it must be an enquiry into a return. Notice cannot be given before a return is made. And it must be given within the time allowed. Once the "window" has passed, an Officer may investigate a taxpayer's affairs only by using other powers such as those in section 29 TMA. In this decision I refer to an enquiry under section 9A or its corporation tax equivalent as an "enquiry". I refer to any other form of enquiry or investigation as an "investigation".
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. But 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.
5. An enquiry, once notified, continues until an Officer gives the taxpayer notice closing the enquiry. No time limit is set for the time that an Officer may spend on an enquiry. If a taxpayer considers that an enquiry has gone on too long, then he or she may make an application under section 28A TMA to a General or Special Commissioner asking the Commissioner to direct the enquiry to be closed.
6. The relevant provisions in section 28A are:

"(4) The taxpayer may apply to the Commissioners for a direction requiring an officer … to issue a closure notice within a specified period.

(5) Any such application shall be heard and determined in the same way as an appeal.

(6) 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."

7. Both parties briefly mentioned decisions of the courts and Special Commissioners about the use of these powers. I see no value in repeating any of them here. The law is clear and straightforward. Each decision about a closure application must be made as an exercise of judicial discretion on the facts of that case. It does not assist me to know precisely how another Commissioner took a decision on another application.
8. 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).
9. 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.

10. I must apply these principles to these applications. In doing so, I take into account the sworn evidence given before me by Mr Ronald Alcorn, the Officer with (in his words) current ownership of these enquiries and investigations. I saw documents submitted by both parties. I received no evidence directly from any of the taxpayers, although Mr Feng made a number of unproven assertions of fact about them. I put no weight on any assertion for which I was not given evidence unless Mr Faulkner in his submissions or Mr Alcorn in his evidence accepted it as common ground in the applications.

The application on behalf of the company

11. The company has made one tax return to date. It was made in March 2008 for the accounting period to 28 02 2007. Regardless of the proper filing date, the "window" for giving notice of an enquiry into that return is still open: Schedule 18, paragraph 24. I accept that no notice of an enquiry has been given to the company in respect of that return. I have no power to make any direction about that return.

The applications on behalf of Mr Lee

12. Mr Feng asked me to direct closure of all investigations into Mr Lee's affairs for the tax years from 1998 to 2007. Mr Lee provided his self-assessment returns to HMRC for the tax years 2005, 2006 and 2007 on 10 12 2007. The "window" is still open in respect of each of those years: section 9A(2). His previous returns had been submitted in time, the 2004 return having been submitted on 17 01 2005. The "windows" for that and previous returns have closed. I am satisfied on the evidence before me, including the evidence of Mr Alcorn, that no section 9A notice has been served in respect of any of these returns. If HMRC are conducting investigations into Mr Lee's affairs, then these are not matters over which I have jurisdiction.

The applications on behalf of Mrs Lee

13. A section 9A notice was given in respect of Mrs Lee's self-assessment return for 2004-05. The return was made in time on 24 01 2006. Notice of an enquiry was made in time on 14 12 2006. That enquiry has not been closed. Those facts are common ground between the parties. The notice was issued by Mr Every, a local investigating officer of Revenue and Customs. The letter included a copy of HMRC Code of Practice 11, Self-assessment: Local office enquiries. On the same day Mr Every sent a letter to Mrs Lee's accountants notifying them that a section 9A notice had been sent to their client. Attached to that letter was a schedule of information and documents requested from them or their client in respect of that tax year.
14. I accept that Mrs Lee made no returns for the years ending in 1998 to 2002. It follows that section 9A notices could not be given for those years. I have no jurisdiction under the present application to make any directions about any investigations that may be taking place with regard to those years. Timely returns were made for 2002-03 and 2003-04. I accept the evidence for HMRC that no section 9A notices were given about those returns in the relevant "windows".
15. A timely return was made for the 2006-07 year on 25 01 2008. The "window" for that year has not yet closed. I accept that no section 9A notice has been given for that year. I have no power to consider any investigations being undertaken by HMRC about that year.
16. Mrs Lee made a self-assessment return for 2005-06 in time on 16 01 2007. That is the only return with regard to which Mr Faulkner accepted that there may be some doubt about my jurisdiction. The "window" for that return is closed. Mr Feng contended that a letter of 22 10 2007 from Mrs R Smith, an Officer who was at that time a member of a Civil Investigation Fraud team, should be read as such a letter. It was within the "window" for enquiry into that return. And it was addressed to the taxpayer.
17. Mr Faulkner accepted that it might be arguable that this could be read as notice of an enquiry, but he submitted that it was not, and should not be regarded as, such a notice. It notified the recipient that the office from which the letter was sent would conduct "an investigation of your personal tax affairs". It did not state that it was a section 9A notice. Nor did the letter sent at the same time to the accountants. It was accompanied by a copy of HMRC Code of Practice 9, Civil Investigation into Cases of Suspected Serious Fraud and not merely Code of Practice 11. And it referred generally to "the returns and/or accounts you have submitted", not to any specific return. I find that the letter of 22 10 2007 was not a section 9A notice in respect of any specific tax return.
18. I therefore have no jurisdiction to make the direction for which Mr Feng asks in respect of any return other than that made by Mrs Lee for 2004-05.

Should I direct closure of the enquiry opened on 14 12 2006?

19. I heard full evidence from Mr Alcorn, the officer with current "ownership" of this enquiry and any other investigations into the tax affairs of the applicants. I heard no evidence from or for any of the taxpayers. Nor did I receive any useful documentary evidence from any of them other than the agreed correspondence between the parties and copies of notes of meetings between the parties. Having heard Mr Alcorn's answers under cross-examination as well as having seen several witness statements by him (supported fully by exhibits), I accept his evidence.
20. I see no useful purpose in repeating in detail the clear chronology of events in the relationships between the applicants and their advisers and Officers of Revenue and Customs that led to these applications. I note here only the key features.
21. In exercising my discretion in this case, I consider it right to have in mind that HMRC, since the merger of the two separate direct and indirect tax departments, properly may use information about investigations about possible failures to comply with the requirements of value added tax law (or PAYE provisions or other tax matters) as relevant to possible failures to comply with the obligation to make a full return for income tax purposes. I accept that there is relevant evidence of test purchases within the period relevant to this return. I put weight on the fact that it was accepted for Mrs Lee in the light of that evidence that her original return for this year was not fully in accordance with the statements she signed at the end of the return with regard to trading income. I accept evidence that there were unresolved questions about whether Mrs Lee made timely disclosure of any taxable income by way of saving income on accounts. I have received no direct evidence from or for Mrs Lee to suggest that this is no longer so. It is clear from this that there were good grounds for the section 9A enquiry to be opened in this case. Should it now be closed?
22. Mr Feng argued for early closure of the enquiry because Mrs Lee had now produced all the evidence that she could produce about the relevant year. Mr Alcorn gave clear evidence why he was not satisfied that this was so. I must repeat again that I had no direct evidence before me that Mrs Lee had produced either all the evidence for which she had been asked or at least all the evidence that she could reasonably produce from her own possession or control.
23. Evidence of some bank accounts was produced in June 2008. This was in response to a letter to Mrs Lee from Mr Alcorn sent two months before. The evidence provided some information directly relevant to the 2004-05 year and little more. That letter asked for considerably more information than was produced and warned the recipient that Mr Alcorn was considering applying to a Commissioner for a notice under section 20 TMA seeking that information. I understand that it was informally accepted by both parties that further steps with regard to any application under section 20 should await the outcome of this application. That may be so, but I accept the evidence that this leaves Mr Alcorn with no further information than that so far provided. There are clearly matters on which Mr Alcorn may reasonably consider that there are further enquiries to be made. It would not be reasonable for me to require early closure of this investigation.
24. I take into account, without repeating here, the different figures put by the parties to the understatements of trading income to which Mrs Lee has in part admitted. The figures mentioned at various stages range from original assertions that the accounts were correct to a possible error rate of some 44 per cent. I take into account Mr Alcorn's evidence that he is not satisfied to date that Mrs Lee has disclosed all relevant bank accounts and similar records and any relevant savings. I do not accept Mr Feng's submission that there are enough clear figures available for HMRC to correct the self-assessment.
25. I also take more general factors into account. I know from direct judicial experience that if an enquiry is closed at too early a stage it may result in matters that could have been resolved between the parties being resolved instead through an appeal. I also have in mind that a refusal to direct closure today does not prevent a later application to stop the enquiry if later events show that to be justified.
26. Having considered all the available evidence in the light of those considerations, I am satisfied that it would not be right at present to impose any timetable on the conduct by HMRC of the one enquiry that is being undertaken. I add finally that Mr Feng stressed that his instructions were to settle any outstanding matters after negotiation. I certainly commend that outcome to both parties.

DAVID WILLIAMS

SPECIAL COMMISSIONER

RELEASED: 7 November 2008

SC 3128/2008

SC 3129/2008

SC 3130/2008