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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Application - customers with UK addresses holding non-UK accounts [2009] UKFTT 196 (TC) (17 June 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00149.html Cite as: [2009] UKFTT 196 (TC)

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[2009] UKFTT 196 (TC)

TC00149

Appeal number TC/2009/10088

NOTICE UNDER para 5 Sch 36 FA 2008 without naming the taxpayer – whether conditions satisfied – yes – whether approval should be given to the Notice – yes

FIRST-TIER TRIBUNAL

TAX CHAMBER

APPLICATION BY THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS TO SERVE A NOTICE UNDER PARA 5 OF SCH 36 TO THE FINANCE ACT 2008 ON FINANCIAL INSTITUTION NO 10 IN RESPECT OF CUSTOMERS WITH UK ADDRESSES HOLDING NON-UK ACCOUNTS

TRIBUNAL: TRIBUNAL JUDGE JOHN AVERY JONES CBE

Sitting in private in London on 15 June 2009

Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance and Dennis Dixon of their Solicitor's Office for the Applicant

© CROWN COPYRIGHT 2009

DECISION

1. This is an ex-parte application by the Commissioners for HM Revenue and Customs for consent to serve a Notice under paragraph 5 of Schedule 36 to the Finance Act 2008 on a Financial Institution ("the Financial Institution"). The Notice seeks documents about customers with UK addresses with non-UK bank accounts with the Financial Institution. HMRC were represented by Mr Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance ("the Officer") and Mr Dennis Dixon of their Solicitor's Office.
2. In advance of this application I had a written brief from HMRC consisting of 13 pages of general information plus a further 7 pages with information specific to the Financial Institution with exhibits contained in a ring binder. The Financial Institution also made written representations in the form of a 6 page submission. They ask me to give a written decision, a procedure that has been adopted before, which I agreed to do in this case.
3. Paragraph 5 of Schedule 36 to the Finance Act 2008 reads:

"5—(1) An authorised officer of Revenue and Customs may by notice in writing require a person—

(a)     to provide information, or

(b)     to produce a document,

if the condition in sub-paragraph (2) is met.

(2) That condition is that the information or document is reasonably required by the officer for the purpose of checking the UK tax position of—

(a)     a person whose identity is not known to the officer, or

(b)     a class of persons whose individual identities are not known to the officer.

(3) An officer of Revenue and Customs may not give a notice under this paragraph without the approval of the tribunal.

(4) The tribunal may not give its approval for the purpose of this paragraph unless it is satisfied that—

(a)     the notice would meet the condition in sub-paragraph (2),

(b)     there are reasonable grounds for believing that the person or any of the class of persons to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts, VATA 1994 or any other enactment relating to value added tax charged in accordance with that Act,

(c)     any such failure is likely to have led or to lead to serious prejudice to the assessment or collection of UK tax, and

(d)     the information or document to which the notice relates is not readily available from another source.

(5) In this paragraph "UK tax" means any tax other than relevant foreign tax and value added tax charged in accordance with the law of another member State."

4. The following is a recital of the factual basis as I understand it:

(1) Until 12 February 2007 the Financial Institution had a subsidiary in the Isle of Man. It holds information on an estimated 3,600 individual customers with UK addresses and non-UK bank accounts, although it is possible that this figure may include individuals with more than one account. When the subsidiary was closed its computer systems were destroyed and the information exists now only in the form of over 94,000 documents (each comprising a number of pages from 1 to 20) in PDF format.

(2) HMRC are currently investigating the use of offshore accounts by UK residents, in the course of which an offshore disclosure facility took place during 2007. Although not in connection with a Notice to this Financial Institution a number of people with accounts in this Financial Institution made disclosures in which the tax loss was an average per case of £40,517.50.

(3) Of the persons with foreign bank accounts for which HMRC have previously obtained information from other financial institutions the number making notifications under the offshore disclosure facility or otherwise being investigated that resulted or are expected to result in a tax loss was 20% of cases (this is a correction to the 25.24% of cases which was the figure given in previous applications relating to other institutions). This percentage excludes accounts of those for which HMRC have no information about the person and cases where they know about the person but no overseas income has been disclosed and who have not taken part in the disclosure. It is therefore likely to be the minimum percentage.

(4) Applying the 20% and the average tax loss to the number of customers gives a potential tax loss for customers of the Financial Institution of about £21m.

5. I emphasise that no allegation is made against the Financial Institution. The Financial Institution and HMRC have had four meetings or telephone conferences starting on 12 June 2008. As a result of this dialogue the Financial Institution has agreed the form of the Notice, but without agreeing that they should be issued.
6. The first representation made by the Financial Institution is that extraction of information will be onerous since the 94,000 documents in PDF format will have to be read individually and information more than six years old redacted. They estimate that this will take 300 man days on the basis of 30 seconds per document, which does not include the time taken to open the document electronically. HMRC's response is that much of this time relates to redaction of material over six years old and the Financial Institution cannot complain about onerousness in that connection. I find this difficult to judge and consider that merely finding the customers with UK addresses could not be done more quickly and possibly electronically (they mention the possibility of using forensic accountants to perform an electronic review of the documents, and HMRC say that they can deal with documents in this format). However, since there is an appeal process dealing with onerousness at which the representation can be tested I pay only limited regard to this aspect.
7. The second representation is that the documents will not be usable by HMRC because of its format. In addition some of the information in the documents is 5 years old and may not be the current addresses and less than 105 of the addresses have full post codes. They say that the interest credited to all accounts in their sample of 473 documents was only £384. Of the sample 3.8% of customers had a UK address and only 1.7% had a balance exceeding £10,000. They submit that the potential loss of tax on the interest should not be regarded as indicating serious prejudice to the assessment or collection of tax. They also say that the majority of customers transferred their accounts to their branch and then to another bank which is known to have already received a Notice. HMRC reply that they have techniques for analysing the data regardless of the format and that the documents will be fully utilised in their compliance strategy. Given the disclosures so far made by customers of the Financial Institution there is no reason to suppose that those who have so far disclosed are the only non-compliant customers. HMRC estimate that a further 533 customers will be non-compliant. Of the cases already known to HMRC only two out of 18 cases they have reviewed had moved their accounts to the other bank and in any case such customers cannot be deleted from the notice without breaching HMRC's confidentiality. I consider that the usefulness of the documents is something for HMRC to judge. I prefer to rely on HMRC's estimate of the potential yield which is based on figures from customers of the Financial Institution than the sample figures given by the Financial Institution. In any event, it is not only the interest on the account that concerns HMRC; the capital in the account may represent income that should have been taxed.
8. I do not consider that any of these representations should prevent the issue of the Notice. In the light of the above I am satisfied first, that the documents are reasonably required by the Officer for the purpose of checking the UK tax position of a class of taxpayers whose individual identities are not known to the Officer. Secondly, in the light of the figures, that there are reasonable grounds for believing that any of the class of taxpayers to whom the Notice relates may have failed (or may fail) to comply with any provision of the Taxes Acts. Thirdly, that in the light of these figures and the Officer's estimate of a yield of over £21m, any such failure is likely to have led (or to lead) to serious prejudice to the proper assessment or collection of tax. And fourthly, that the information which is likely to be contained in the documents to which the Notice relates is not readily available from another source (and in particular most of the information required by the Notice is not known even for those whose identities are known to HMRC). Accordingly, paragraph 5 is satisfied.
9. HMRC agree with my arranging for these reasons to be sent to the Financial Institution's advisers. If either HMRC or the Financial Institution have suggestions for anonymisation in addition to removing its name I shall take these into account before authorising publication.

JOHN AVERY JONES

TRIBUNAL JUDGE

RELEASE DATE: 17 June 2009