SPC00456
Inland Revenue – officer of the Board – persons within definition – power to transfer functions to another officer
Income tax – self assessment – scope of enquiry under TMA 1970 s 9A – nature of return under TMA 1970 s 8
Special Commissioners – withdrawal of certain grounds of appeal – costs – whether wholly unreasonable

THE SPECIAL COMMISSIONERS

	S BENSOOR	Appellant

	- and -

	MRS JF DEVINE
	(HM INSPECTOR OF TAXES)	Respondent

		Special Commissioner:	JOHN CLARK

Sitting in public in London on 2 December 2004

Stephen H Sacks of Shears & Partners, Chartered Accountants for the Appellant

Barry Williams, Inland Revenue Appeals Unit London for the Respondent

© CROWN COPYRIGHT 2005

DECISION

1.	This hearing involves two matters. Mr Shalom Bensoor has applied for a closure notice under section 28A of the Taxes Management Act 1970 confirming the completion of an enquiry under section 9A of that Act (in the form substituted by the Finance Act 2001). (References to section numbers in this decision are to the Taxes Management Act 1970 except where otherwise indicated.) Mr Bensoor has also appealed against the issue of a notice under section 19A. At the hearing, the issue was limited (as explained below) to the validity of the notice under section 9A.
The facts
2.	The evidence consisted of the Appellant’s bundle of documents, and the oral evidence of Mr J Dias, a Revenue Executive based at the City of London Area Compliance Office. From this evidence I find the following facts.
3.	Mr Bensoor’s 2002 self assessment tax return was issued by Norwich 1 TSO. On 30 January 2003 his tax advisers, Shears & Partners, delivered the completed return to the Inland Revenue’s North London Area office. The return was accompanied by accounts for the period ended 28 February 2002, working sheets and schedules. The covering letter emphasised that the accounts, working sheets and schedules formed an integral part of Mr Bensoor’s 2002 self assessment. In the white space at Box 23.5 of the return, it stated: “The entire return can only be interpreted together with the accounts and Schedules submitted with it.”
4.	On 13 March 2003, the Inland Revenue Norfolk Area issued a form SA310 to Shears and Partners confirming that “Your client’s Tax Return for the year ended 5 April 2002 has been processed without any need for correction”.
5.	On 12 January 2004 Mr Dias issued a notice under section 9A. He referred to Mr Bensoor’s claim to loan interest relief, and in the covering letter to Shears & Partners he asked for details of the purpose of the loan and why it was thought to qualify for relief. In his letter to Mr Bensoor he stated, “My enquiry is into your claim to interest relief. I will not be checking other areas of your return unless your reply, or any other information, gives me reason to do so.”
6.	At the hearing Mr Dias was called as a witness for the taxpayer. He confirmed that he was not an inspector, but had passed the appropriate examinations to qualify within the Inland Revenue at a grade below that of inspector. He did not think that he had had a paper copy of Mr Bensoor’s return before he had issued the section 9A notice, or at least he could not recall having it; he indicated that with “aspect” enquiries, his office did not actually receive the paper return. Mr Dias was unable to recall a telephone conversation with Mr Sacks on 14 January 2004, but Mr Sacks wrote to him on 15 January 2004 referring to a telephone conversation following the letter dated 12 January. With that letter Mr Sacks enclosed copies of a mortgage statement dated 31 December 2002, of page 9 of Mr Bensoor’s return (drawing attention to the comment in Box 23.5), and of the income tax computations which had been attached to the return (again drawing attention to a highlighted note). He requested a completion notice. Based on this letter, I am satisfied that the telephone conversation did take place, despite Mr Dias’ inability to recall it.
7.	On 3 February 2004, Mr Dias (signing on this occasion as a “compliance officer”) wrote to Shears & Partners acknowledging receipt of “your tax return for the year ended 15 January 2004”. I find that this must have been a reference to Mr Sacks’ letter of that date, rather than to a return as such. On 5 February Mr Sacks wrote following a further telephone conversation relating to the need to correct a point on the capital gains tax pages of the return; a tick under “yes” needed to be made because Mr Bensoor was claiming retirement relief. He enclosed copies of the relevant pages. Mr Dias replied on 17 March 2004; he was seeking advice on the goodwill valuation and would write again when he could. He indicated that the claim for loan interest relief should have been made in Box 3.60 on the self-employment pages. (He signed this letter as a “revenue executive”.)
8.	On 23 March 2004 Mr Sacks wrote requesting a listing for a hearing at which he proposed to request the issue of a completion notice.
9.	On 23 April 2004, Mr Stevens of the Inland Revenue Capital Taxes Shares Valuation office wrote to Shears & Partners requesting information relating to the goodwill of Mr Bensoor’s business on its transfer to a company on 28 February 2002. (The letter dated 19 March 2004 referring the matter to that office had only been received on 5 April 2004.) Mr Sacks responded on 7 May 2004, referring to that delay and also the further time taken before Mr Stevens’ letter. Mr Sacks pointed out that in common with Mr Dias, Mr Stevens did not appear to have the taxpayer’s file or the original self assessment return and enclosures. Mr Sacks summarised the history from the date of submission of the return. He concluded that Mr Stevens was raising questions based on computer produced calculations without looking at the underlying materials already submitted. With the letter, Mr Sacks enclosed copies of both the 2001 and 2002 returns and all schedules. Mr Stevens responded on 12 May 2004; he was unable to comment on the matters relevant to the Inspector, but raised further questions relating to the goodwill.
10.	Further correspondence continued between Shears & Partners and the Inland Revenue Appeals Unit. On 20 August 2004 Mrs Devine issued to Mr Bensoor a notice under section 19A requesting information relating to the business as at 28 February 2002. It had previously been proposed by Mr Williams that the appeal against this notice should be heard at the same time as the closure application, and Mr Sacks did not dissent from this proposal.

Arguments for the Appellant
11.	In summary, Mr Sacks raised the following issues relating to section 9A; these are considered in further detail below:
(1)	who qualifies as an officer of the Board;
(2)	what is the meaning of “enquire”, and in an aspect enquiry, what additional enquiries may be made;
(3)	what constitutes a return under section 8 or 8A;
(4)	can any legal proceedings or administrative act relating to tax begun by one inspector be continued by one who is not an inspector.

Arguments for the Respondent
12.	Mr Williams raised points under the following headings:
(1)	 taxation and other authorities on the meaning of “officer of the Board”, and the extent of powers to delegate;
(2)	the nature of records of returns kept by the Inland Revenue;
(3)	the formal requirements for a return;
(4)	the nature and extent of an enquiry;
(5)	alternative remedies for failures in Inland Revenue procedures.

Discussion and conclusions
13.	It is very unfortunate that the information given in the white space at Box 23.5 and in the documents accompanying the return was not linked to that contained in the computer record of the return. (Mr Sacks suggested that the paper return and attachments had been lost; this was not established by the evidence, but clearly there was a problem in tracing the supporting items, and Mr Sacks had to supply copies to Mr Williams as well as those already supplied to Mr Dias and Mr Stevens.) Mr Williams explained that the practice in relation to “full” enquiries was now to ensure that the paper return was provided to the officer dealing with the enquiry. This practice does not apply in relation to “aspect” enquiries. Irrespective of the formal position as a matter of law, it would be desirable for the practice (and if necessary, the software) to be changed to ensure that the computer record disclosed the existence of additional documents sent with the return and entries made in the white spaces in the return. If the office dealing with the enquiry could be made aware of the existence of such materials, even if these were not automatically sent to that office, this would mean that information about them could be requested from the office where they were retained. Clearly, a “blanket” rule requiring the submission of all supporting materials to the office dealing with an aspect enquiry would be impractical, but it would be an improvement for that office to be put on notice of the existence of such materials.
14.	The proceedings brought by Mr Bensoor were an application under section 28A(4) for a direction requiring the officer to issue a closure notice within a specified period, and an appeal under section 19A(6) against a notice under section 19A requiring documents and particulars relating to Mr Bensoor’s business. At the hearing (as he had done in a letter dated 22 July 2004 to Mr Williams) Mr Sacks challenged the validity of the section 9A notice. Following discussions after Mr Williams’ submissions, Mr Sacks agreed that Mr Bensoor’s application and appeal should stand or fall on this question of the validity of the original notice, so that if I were to find against Mr Bensoor, it would be accepted on his behalf that a closure notice should not yet be issued, and that he would have to comply with the section 19A notice. (This change in the basis of the appeal raised certain procedural questions, which I consider later.)
15.	Mr Sacks’ initial challenge to the section 9A notice was on the basis of Mr Dias’ status. Mr Dias was surely not an “officer of the Board” as defined in section 39 of the Inland Revenue Regulation Act 1890. It was clear from Mr Dias’ evidence that he was not an inspector (as defined in section 118) acting under the general direction of the Board pursuant to section 1. There was a close analogy with Her Majesty’s armed forces, which comprised officers and others; a Private, a Corporal and a Sergeant were not officers. Those in the Revenue who had not attained the “rank” of inspector were clearly not officers, and were therefore “other persons” within section 4 of the Inland Revenue Regulation Act 1890. Mr Sacks contended that as a result, Mr Dias did not have the legal capacity to issue a notice under section 9A. In response, Mr Williams referred to the definition of “officer” in the Oxford English Dictionary; Mr Dias was within that definition. In Moberly v Allsop [1992] C.O.D. 190, the Divisional Court had held that the railwayman had been appointed by his employers to carry out a specific duty, and that he was thus an officer within the relevant legislation; rank was not a decisive factor. Mr Williams also referred to section 9(4) of the Civil Evidence Act 1995 defining an “officer”; there was no reference to grade or status. Mr Williams also referred (in accordance with the rule in Pepper v Hart, reported at [1992] STC 898) to the debate on the Finance Bill on 15 February 1994. The Minister had stated that the function set out in the statute was not tied down to an inspector, but could be discharged by any qualified person in the Revenue. Officers of the Board included inspectors, collectors and people who held office neither as inspector nor collector, but who were of adequate seniority in the Inland Revenue to discharge those functions. Mr Williams referred to Mr Dias’ evidence, which had established that Mr Dias had been appropriately qualified on the basis of the relevant examinations and his service within the Revenue. Powers could be delegated, as indicated in Burford v Durkin (1990) 63 TC 645 at 681 (Slade LJ). Mr Williams contended that an officer of the Board was any person employed by the Inland Revenue carrying out functions set aside by statute for such a person and whom the Board had designated to perform a particular duty. Unless it could be shown that the officer in the present case had not been designated to carry out the duties specified in statute, his action in opening the enquiry must be valid. Mr Williams quoted the Latin maxim indicating that all acts of an official nature were presumed in favour, unless the contrary was proved. He also pointed out that if Mr Sacks’ argument were correct, all enquiries opened by officers other than inspectors would be invalid, and this would have been the case since the commencement of self assessment in 1996. He argued that this would have major implications for the Revenue, and would require legislation to put matters on a practical footing. On the analogy with the armed forces, he referred to the Moberly case, from which it appeared that junior officers could take an action without a command from an officer.
16.	My conclusion on this issue is that Mr Dias should be regarded as an officer of the Board for the purposes of section 9A. Clearly he was not an inspector as defined in section 118. However, section 9A does not refer to the expression “inspector”. Section 39 of the Inland Revenue Regulation Act 1890 does not define “officer of the Board”; it simply defines “Officer” as “Officer of Inland Revenue”. It makes no reference to inspectors or employees. (As Mr Williams mentioned, at the time of that legislation such officers were in many cases self-employed.) I accept Mr Williams’ argument that Parliament could not have intended the inconvenient results in relation to self assessment returns of a requirement that the person issuing the section 9A notice must be a higher grade officer such as an inspector. Mr Sacks’ objection to the reference to the Finance Bill debate was that the provision under discussion was a specific matter dealing with Lloyd’s underwriters. However, I interpret the Minister’s statement as explaining the expression “officer of the Board” in a much wider context than this; the legislation was introducing the whole of the self assessment system, even if much of it has since been re-written. (The reference to “officer of the Board” in section 9A was one of those inserted by the Finance Act 1994 for the purposes of self assessment, the reference previously having been to “a notice given to him by an inspector”.) Further, the Minister specifically referred to the issue arising in several parts of the Bill. I am satisfied that Mr Dias did have the formal status conferring on him the authority to issue the section 9A notice. It may be, as Mr Sacks argued, that in practice almost all enquiries are issued by officers describing themselves as inspectors, but this is not a formal requirement imposed by the legislation.
17.	The second issue is the meaning of “enquire” and the extent to which additional enquiries can be raised in an aspect enquiry. Mr Sacks referred to the Inland Revenue Enquiry Manual at paragraph EM1050 indicating the distinction between aspect enquiries and full enquiries. At paragraph EM 1905 the Manual referred to the Code of Practice, which indicated that the Inland Revenue would attempt to avoid piecemeal enquiries. In Mr Bensoor’s case, having asked about loan interest, moving to looking at another aspect amounted to making a piecemeal enquiry, which the Manual appeared to preclude; this was specifically mentioned at paragraph EM 2701. There was no relationship between loan interest and a capital gain arising on the incorporation of one’s business. Mr Sacks also referred to paragraph EM 2611, relating to the assurance that powers under section 20 would not be used for “fishing expeditions”; her was sure that this should apply to enquiries. Mr Sacks questioned whether Mr Dias’ powers were restricted by the principle in Scorer v Olin Energy Systems Ltd [1985] STC 218, as the material put before Mr Dias was sufficient to inform an ordinarily competent inspector of what the taxpayer was claiming. (Of course, Mr Dias was not an inspector.) Replying to these contentions, Mr Williams submitted that an enquiry was an enquiry and nothing else. “Aspect” and “full” were administrative terms that within the Inland Revenue to try and help advisers and taxpayers. Any enquiry was an enquiry into the whole of the return, and therefore had to be all the way. The principle in Scorer v Olin Energy Systems Ltd was not an issue here, as it could not apply in the present context. The Enquiry Manual was not binding on this Tribunal. If there were a failure in Inland Revenue procedures, there were other ways of dealing with this. He instanced judicial review, and complaint to the Inland Revenue Complaints Department. As in Lime-IT Ltd v Justin (reported at [2003] STC (SCD) 15), the Inland Revenue’s handling of the case was not relevant to the decision that the Tribunal had to make.
18.	On this second issue, I consider that the terms of section 9A are not limited in the way that Mr Sacks contended. First, the terms are general; in other words, there is nothing to limit the scope of the enquiry. I do not find this surprising, as section 9A is the basis for purely random enquiries, as well as those commenced because the return contains something calling into question whether it is complete and correct. Further, there is no distinction within the legislation between types of enquiry. This is acknowledged in the Inland Revenue Enquiry Manual at paragraph EM1050, which indicates that the distinction between full and aspect enquiries is for the purpose of organising work within the Revenue. Thus the distinction is a matter of administrative practice, not a matter of law. Consequently, there is no basis within the legislation for questioning the scope of any form of enquiry commenced under section 9A. There are other means of raising questions concerning the approach and application of the Inland Revenue’s practice as set out in the Code of Practice and the Enquiry Manual, but as Mr Williams indicated, these are not within the jurisdiction of this Tribunal. It might be hoped that the Inland Revenue would act consistently with the indications in its published materials of the practice to be adopted in specific circumstances, but any remedy for a possible failure to do so would have to be pursued elsewhere. As the scope of the enquiry is not limited by section 9A, there is no basis under the section for objecting to the Inland Revenue’s use of, or failure to use, information provided to it for the purpose of completing the self assessment return.
19.	The third issue is what constitutes a return under section 8 or 8A. (As Mr Bensoor’s return was made under section 8, section 8A is not considered in this decision.) Mr Sacks questioned what constituted a filed self assessment return that had not been filed electronically. Was it the information captured by the Inland Revenue from the filed paper return and retained on the Revenue’s computer system? Or was it the original signed paper return issued by the Inland Revenue or an original signed and approved substitute, in either case together with the accompanying materials stated in the return to form an integral part of the return? Mr Williams’ argument in response was that a return was any document in a form prescribed by the Board of Inland Revenue that answered a notice under section 8 and was correct and complete.
20.	Given my decision on the second issue, it is open to question whether this point needs to be decided. Mr Bensoor submitted a return, together with supporting documents, to Norwich 1 District. This was processed, and the computer record was used by Mr Dias as the basis for opening an enquiry under section 9A. The terms of the section are such that, however much or little information has been provided in a return, the officer may commence an enquiry. As an enquiry can be on a purely random basis, there is no mechanism requiring the officer to justify the decision to begin it. I have already referred to what may be desirable as a matter of practice, but the legislation provides no specific limitations. Again, this is not surprising. If a taxpayer were to submit a return which was deficient in certain respects, it would clearly be necessary for the Inland Revenue to have power to begin an enquiry. For these purposes a deficient return must still constitute a “return” within the terms of the section. It would be undesirable for the enquiry powers to be limited by reference to the amount of information available or unavailable to the officer. Whether there might be a remedy in respect of a failure by the Inland Revenue to use information within its possession or power is a separate question, again falling outside this Tribunal’s jurisdiction.
21.	The fourth issue raised by Mr Sacks was whether any legal proceedings or administrative act relating to tax begun by one inspector could be continued by someone who was not an inspector. Again, it is debatable whether this issue needs to be considered separately, given the decision on the first issue. Sections 8 and 9A refer to “an officer of the Board”. The return was issued by the “Area Director”, an officer in Norwich 1 District. The section 9A notice came from Mr Dias, who was also a revenue officer. Thus there was no commencement of proceedings or administrative act by anyone designated as an inspector. I do not consider that there can be any complaint concerning the transfer of the work relating to the return from Norwich 1 District to the City of London Area Compliance Office. The self assessment legislation does not tie work on a taxpayer’s return to a particular district. Mr Williams cited a case relating to the system before self assessment, R v General Commissioners for Tavistock (ex parte Adams) (No 2) (1971) 48 TC 56, which indicated that an inspector in one district could deal with a taxpayer’s affairs even where a trade or part of it was carried on in a different area. However, given the nature of the self assessment system, I do not think that it is necessary to rely on this authority, even though section 1(3) is the consolidated version of the legislation under consideration in Adams.
Summary of conclusions
22.	Mr Bensoor is not in a position to resist the section 9A notice. Given the basis on which Mr Sacks pursued the appeal on his behalf, it follows that it is premature for Mr Bensoor to apply for a closure notice, and that he must comply with the section 19A notice. The closure application is accordingly refused, and Mr Bensoor’s appeal dismissed.
Procedural matters
23.	Despite various attempts in the course of correspondence, no directions were agreed in advance of this hearing. This was regrettable, but partly due to Mr Sacks’ absence from his practice for a period, as a result of a serious illness. The hearing was listed at relatively short notice because of difficulties with Mr Sacks’ availability. Mr Sacks’ skeleton argument was served at a very late stage, so that the grounds put forward at the hearing differed somewhat from those that might have been expected from the arguments put in correspondence. In addition, the arguments for Mr Bensoor based on the completion application under section 28A and the notice under section 19A were abandoned. As a result, preparation in advance for the hearing was not specifically directed towards the matters that became the principal issues. Further, the abandonment of the original arguments also resulted in a waste of time and resources. Mr Stevens had been required as a witness for the Revenue; in addition to providing a witness statement, he had had to travel to London from Nottingham for the hearing, only to discover at the end of the morning that he would not be required. Apart from the costs implications, considered below, this is not a satisfactory way to prepare for and conduct a hearing. Based on the experience in this case, I would suggest that no hearing should take place in the absence of directions being agreed or imposed, unless a Special Commissioner has considered the matter and agreed that in the particular circumstances no directions are necessary.
Costs
24.	The powers of the Special Commissioners to award costs are limited. Under regulation 21 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994, SI 1994/1811, the Tribunal may make an award of costs against a party to the proceedings if it is of the opinion that that party has acted wholly unreasonably in connection with the hearing in question. This is a stringent test, as appears from a number of earlier decisions. Mr Sacks argued that the Inland Revenue had acted wholly unreasonably; he referred to a number of respects in which he considered the actions of the Inland Revenue to have been unreasonable. However, whether or not these actions were unreasonable, none of them was directly connected with the hearing. Nor in particular can the apparent failure by the Revenue to follow its own published practice be regarded as unreasonable conduct in connection with the hearing, regrettable as it was. In the absence of such a connection, there is no basis for awarding costs in Mr Bensoor’s favour under regulation 21. Mr Williams also applied on behalf of the Inland Revenue for an award of costs against Mr Bensoor, on the grounds that Mr Sacks’ conduct of the hearing had unnecessarily required Mr Stevens’ presence as a witness. I do not accept this argument. Mr Sacks’ decision to abandon the earlier contentions was a result of reviewing the way in which the hearing had progressed on the day, and the practicalities of continuing to pursue those contentions. It would not be appropriate to penalise a party for tactical decisions taken in the light of the experience at the hearing. The failure to agree directions may not have helped, but in the circumstances of the present case this is not a matter involving unreasonable conduct.
25.	My final observation is that this hearing and the preceding correspondence would not have proved necessary if the claim for interest relief had been made in Box 3.60 on the self-employment pages as indicated by Mr Dias in his letter dated 17 March 2004.

JOHN CLARK

SPECIAL COMMISSIONER
RELEASE DATE:17January 2005

SC/3064/2004
SC/3132/2004