Low v Revenue and Customs [2005] UKSPC SPC00510 (15 November 2005)

                                                                                                  SPC510

NOTICE FOR PRODUCTION – whether the Respondents could reasonably require the provision of specified documents and information for the purposes of verifying the accuracy of the tax return – a previous enquiry under Working Families’ Tax Credit did not absolve the Appellant from providing information requested under an enquiry into his income tax return – the Notice did not contravene Article 8 of the Human Rights Convention – satisfied that the Inspector could reasonably require the  specified documents and information for the purpose of verifying the Appellant’s tax return – Appeal Dismissed – TMA 1970 s 19A. 

THE SPECIAL COMMISSIONERS

	PAUL LOW	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS	 Respondents

			Special Commissioner:	MICHAEL TILDESLEY OBE					

Sitting in public in London on 7 October 2005

The Appellant did not appear

Christine Leggett of the Southern England Regional Appeals Unit HM Revenue & Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION
The Appeal
1.	The Appellant was appealing against the requirement to produce his business accounts, records and other documents imposed by a Notice under section 19A of the Taxes Management Act 1970 (hereinafter called TMA 1970) issued on 4 January 2005. 
Background
2.	The Appellant has been self-employed as a private investigator/debt recovery agent since 22 June 1997. On 6 April 2002 the Respondents sent the Appellant a notice requiring him to submit a Tax Return for the financial year 2001/2002 by 31 January 2003. The Respondents received the Return on 13 November 2003. On 18 June 2004 Mrs Woodburn, an Inspector of HM Revenue & Customs, opened an enquiry into the Appellant’s whole tax return for 2001/2002. Mrs Woodburn requested the Appellant to provide certain documents in order to check his tax return. The Appellant did not provide any of the documents requested. On 4 January 2005, the Inspector issued a Notice under section 19A TMA 1970 requiring the Appellant to produce specific documents and information by 8 February 2005. On 31 January 2005 the Appellant appealed against the section 19A Notice and elected that the Appeal be heard by the Special Commissioners.
3.	The Notice under section 19A required the Appellant to provide the following:
(1)	The business profit and loss account for the year ended 5 April 2002.
(2)	The business records for the year ended 5 April 2002 including a cash book, business diary, sales invoices, purchase invoices, wages records, expenses vouchers, business mileage records and any other records maintained.
(3)	Independent documentary evidence to verify that the business suffered bad debts of £11,750 in the year ended 5 April 2002.
(4)	A full analysis of drawings for the year ended 5 April 2002, distinguishing cash and cheque items.
(5)	Credit card statements covering the period 6 April 2001 to 5 April 2002 for any credit cards used for business purchases and expenses.
(6)	All statements, passbooks, cheque stubs and paying in paying-in books covering the period 6 April 2001 to 5 April 2002 in respect of all accounts held in the Appellant’s name, either solely or jointly, or otherwise under the Appellant’s control and in which business transactions have taken place.
(7)	Documentary evidence, including all associated contracts and correspondence to verify the source of the bank deposit for £25,887.50 on 12 March 2002 and to explain the nature of this receipt.
The Issues in Dispute
4.	Whether the documents and particulars in the Notice under section 19A TMA 1970 were reasonably required for the purposes of determining whether the Appellant’s 2001/02 self assessment tax return was incorrect or incomplete:
(1)	 when Mr Low has already provided the Respondents’ Working Families’ Tax Credit Compliance Team with detailed answers and documents. 
      AND 
(2)	those detailed answers and documents covered the questions now raised over some specific enquiries in the section 19A Notice, for part of the period covered by the Notice. 
5.	Whether the requirements of the section 19A Notice contravened the Appellant’s human right of respect for his private and family life, his home and his correspondence under Article 8, Schedule 1 of the Human Rights Act 1998.
6.	Whether the specific documents and information requested under the section 19A Notice issued on 4 January 2005 were reasonably required for the purpose of determining whether the Appellant’s return for 2001/02 was incorrect or incomplete.
The Legislation
7.	Section 19A(1) of the TMA 1970 provides that the section applies where an Officer of the HM Revenue & Customs Board gives notice under section 9A(1) to the taxpayer of his intention to enquire into the return on the basis of which a taxpayer’s self assessment was made. The agreed facts for this Appeal revealed that there was no dispute between the parties that a notice of enquiry under section 9A(1) had been given to the Appellant within the required time limit.
8.	Section 19A (2) and (6) provide:
“(2) For the purpose of enquiring into the return the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as shall be specified in the notice.
(a)	to produce to the officer such documents as are in the taxpayer’s possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which the return is incorrect or incomplete and
(b)	to furnish the officer with such accounts or particulars as he may reasonably require for that purpose.
(6) An appeal may be brought against any requirement by a notice under subsection (2) above to produce any document or to furnish any accounts or particulars”. 
9.	Article 8, Schedule 1 of the Human Rights Act 1998 provides:
“(1) Everyone has the right to respect for his private and family life, his home and his correspondence.
  (2) There shall be no interference by a public authority with the exercise of this right except such as in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others”.
10.	I was referred to the following decisions of the Special Commissioners:
Accountant v HM Inspector of Taxes [2000] SpC00258
George Henry Guyer v HM Inspector of Taxes [2001] SpC00274
Preliminary Matter
11.	On 6 October 2005 the Appellant sent a fax to the Office of Special Commissioners requesting an adjournment of the hearing on 7 October 2005. The Respondents opposed the Appellant’s application. His reasons for requesting an adjournment were that
(1)	He had recently made a formal and serious complaint to the Respondents regarding one of their Inspectors.
(2)	He intended to request copies of relevant correspondence and records under the Freedom of Information Act.
12.	I refused the Appellant’s application because:
(1)	The Respondents met the Appellant’s request for disclosure under the Freedom of Information Act on 25 April 2005.
(2)	The Respondents’ Kent Area Office dealt with the Appellant’s complaint with its reply on 20 September 2005.
(3)	The hearing had been fixed since August 2005. 
(4)	The Appeal was ready for hearing. The Appellant had agreed the facts in dispute. The parties had exchanged skeleton arguments and document bundle.
(5)	The Appellant made no mention of his adjournment request when he contacted the Respondents on 3 October 2005.
(6)	The Appellant’s application, therefore, lacked merit and would add unnecessary delay with the hearing of the Appeal.
The Officer of Special Commissioners communicated with the parties advising them that the Appellant’s application had been refused and that the hearing would go ahead the following day.
13.	The Appellant did not attend the hearing. I instructed the Office of Special Commissioners to contact the Appellant to enquire whether he was attending. He responded that he had already indicated in his fax the previous day that he would not attend the hearing. I, therefore, reconsidered his application for adjournment. I could find no reason to depart from my decision the previous day to refuse his adjournment. I granted the Respondents’ application to proceed in the Appellant’s absence, particularly as I was fully aware of the Appellant’s case from his correspondence in the agreed bundle and his skeleton argument.
Issue One: Working Families’ Tax Credit
14.	  In June 2002 the Respondents’ Working Families’ Tax Credit Section opened an enquiry into Mrs Low’s application for working families’ tax credit dated 10 May 2002 requiring detailed information on income and expenditure for the period 1 October 2001 and 31 March 2002. Mr Low provided the information which included details of Halifax card accounts, business accounts’ transfers, BT payments, car expenses, mortgage payments, and children’s schooling. The enquiry was closed on 17 March 2003 with no alteration to the working family tax credit award to Mr and Mrs Low.
15.	The Appellant considered that it was completely unreasonable for the Respondents to expect him to produce the information under the section 19A Notice issued on 4 January 2005 because the Respondents had already carried out a detailed investigation in his financial affairs in connection with his application for working family tax credit. This detailed investigation covered the period 1 October 2001 to 31 March 2002 which covered six months of the period under the section 19A Notice. The Appellant found the work family tax credit enquiry far reaching and highly invasive with which he fully co-operated. He failed to see why it was necessary for the Respondents to carry out another investigation on the same facts. The Appellant saw no merit in the Respondents’ argument that the enquiries were carried out by separate sections of the Inland Revenue. In his view it was still the Inland Revenue.
16.	I am not persuaded by the Appellant’s argument because:
(1)	The Respondents’ powers to make enquiries into an application for working families’ tax credit and a self assessment income tax return were governed by separate legislative provisions.
(2)	The legislative provisions applied in computing working families’ tax credit were different from those that determined the correct amount of income tax due.
(3)	The fact that the Appellant has complied with the enquiry in respect of the working families’ tax credit application did not in itself provide him with a reason for not providing the information requested under a separate enquiry under the income tax legislation.
(4)	In any event the Appellant accepted that the information provided to the Respondents in connection with his working families’ tax credit application only covered six months of the twelve month period required by the Notice for Production under section 19A TMA 1970.
(5)	The Appellant submitted his 2001/02 self assessment tax return after closure of the enquiry in the working families’ tax credit application. The Respondents had already returned Appellant’s documents to him by the time they received the Appellant’s 2001/02 tax return. The Respondents had not retained copies of those documents because it would be a waste of public funds and create unnecessary administrative costs in the off chance that they might be needed for some other purpose.
17.	   I am, therefore, satisfied that the Appellant’s response to the working families’ tax credit enquiry was not a ground for challenging the reasonableness of the order for production under section 19A TMA 1970 issued on 4 January 2005. 
Issue 2: Human Rights
18.	The Appellant submitted that the information requested under the section 19A Notice was an invasion of his privacy since it required him to explain his bank statements, the amount of money spent on food and details of his children’s education. He considered that the request was disproportionate, unfair and contravened his human rights under Article 8 of the Human Rights Convention.
19.	 The right under Article 8 is a qualified right which means that the state may interfere with this right provided that such interference was in accordance with the law, pursued a legitimate aim and was no more than necessary in a democratic society. The Appellant has failed to address in his skeleton argument the qualified nature of the right under Article 8.
20.	Sections 9A and 19A TMA 1970 respectively provided the Respondents with the lawful authority to enquire into the Appellant’s tax return and require the provision of documents and information in connection with his tax return.  The Respondents’ powers to enquire and require production of documents pursued the legitimate aim of verifying the accuracy of self assessment tax returns for the purpose of protecting the United Kingdom’s taxation system and revenue. The Respondents have in this instance requested documents and information which directly related to the Appellant’s business (see paragraph 3 of this decision). They have not requested information about his expenditure on food or the education of his children. In those circumstances the information and documents requested under the section 19A Notice were no more than necessary in a democratic society. The request was proportionate.
21.	I am, therefore, satisfied that the requirements imposed by the section 19A Notice issued on 4 January 2005 to the Appellant did not contravene Article 8 of the Human Rights Convention.
Third Issue: Were the Specific Documents and Information Reasonably Required?
22.	The Respondents’ power to require documents and information must be reasonable and for the purpose of determining whether the tax return was incorrect or incomplete. I am, therefore, required to examine each of the categories of documents and information as specified in the section 19A Notice issued on 4 January 2005 and decide whether they met the twin requirements of reasonableness and verifying the accuracy of the Appellant’s tax return.
The business profit and loss account for the year ended 5 April 2002.
23.	The Respondents required the profit and loss account to demonstrate the link between the Appellant’s primary accounting records and the amounts entered on his tax return. The Respondents would not insist upon the production of a profit and loss account if there was not one in existence.
The business records for the year ended 5 April 2002 including a cash book, business diary, sales invoices, purchase invoices, wages records, expenses vouchers, business mileage records and any other records maintained.
24.	These documents formed the underlying records to justify the Appellant’s expenses as declared in his tax return. The documents requested constituted the basic business records expected to be kept by a taxpayer under section 12B TMA 1970 for the purpose of delivering accurate returns.
Independent documentary evidence to verify that the business suffered bad debts of £11,750 in the year ended 5 April 2002.
25.	Bad debts constituted 45 per cent of the Appellant’s expenses in his 2001/02 return which was a high relative figure requiring verification. The Respondents expected evidence of the original invoices, correspondence with the debtors and steps taken by the Appellant to enforce the debts to justify the deduction for bad debts.
A full analysis of drawings for the year ended 5 April 2002, distinguishing cash and cheque items.
26.	The analysis of drawings would provide an indication of the income relied upon by the Appellant to support his living expenditure. The Respondents, however, would not insist upon a full drawings analysis if there was none in existence. 
Credit card statements covering the period 6 April to 5 April 2002 for any credit cards used for business purchases and expenses.
27.	The credit card statements would verify business expenditure entries in the Appellant’s cash book.
All statements, passbooks, cheque stubs and paying in paying-in books covering the period 6 April 2001 to 5 April 2002 in respect of all accounts held in your name, either solely or jointly, or otherwise under your control and in which business transactions have taken place.
28.	The Respondents were aware from the Appellant’s application for working families’ tax credit that he held bank accounts. The Respondents have restricted their request to accounts in which business transactions have taken place in order to justify the Appellant’s declaration of income and expenditure in his 2001/02 tax return. 
Documentary evidence, including all associated contracts and correspondence to verify the source of the bank deposit for £25,887.50 on 12 March 2002 and to explain the nature of this receipt.
29.	The Respondents explained the reason for this information in their letter to the Appellant dated 1 September 2004 where Mrs Woodburn, HM Inspector of Taxes, explained that she was aware of this deposit from the working families’ tax credit application. The deposit appeared to be the proceeds of a sale of some contracts which may give rise to a capital gains liability. Mrs Woodburn noted that no capital gains had been declared by the Appellant in his 2001/02 tax return.
30.	I have considered the Respondents’ explanations for each of the categories for specific information and documents as set out in the section 19A Notice issued on 4 January 2005. I am satisfied that the Inspector could reasonably require the production of the documents and information specified in the section 19A Notice issued on 4 January 2005 for the purpose of determining the accuracy of the Appellant’s 2001/02 tax return.
My Decision
31.	I have decided that
(1)	The Appellant’s response to the working families’ tax credit enquiry was not a ground for challenging the reasonableness of the order for production under section 19A TMA 1970 issued on 4 January 2005.
(2)	The requirements imposed by the section 19A Notice issued on 4 January 2005 to the Appellant did not contravene Article 8 of the Human Rights Convention.
(3)	The Inspector could reasonably require the production of the documents and information specified in the section 19A Notice issued on 4 January 2005 for the purpose of determining the accuracy of the Appellant’s 2001/02 tax return.
32.	I, therefore, dismiss the Appellant’s Appeal. I make no order for costs.
33.	Under section 19A(9)(a) TMA 1970 I confirm the section 19A Notice issued on 4 January 2005. I note that the Respondents will not insist on the production of a profit and loss account and a detailed analysis of drawings if they are not in existence. 

34.	Under section 19A(10) TMA 1970 the section 19A Notice issued on 4 January 2005 shall have effect as if it had specified 30 days beginning with determination of this Appeal. My determination is final and conclusive in relation to the matters covered by the section 19A. Notice issued on 4 January 2005.

MICHAEL TILDESLEY

SPECIAL COMMISSIONER
RELEASE DATE:15 November 2005

SC 3083/2005