First-tier Tribunal (Tax)

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URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00044.html
Cite as: [2009] UKFTT 76 (TC)

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Deadman Confidential Partnership v Revenue & Customs [2009] UKFTT 76 (TC) (27 April 2009)
INCOME TAX/CORPORATION TAX
Penalty

TC00044

Appeal number 3114-3115/2008

PENALTY DETERMINATION – Failure to comply with notice under section 20 to produce bank statements – s98(1)(b)(i) and s100C TMA 1970 - £300 penalty determined

NOTICE UNDER s19A TMA 1970 – Whether reasonable to have made it – Yes – Appeal dismissed

CLOSURE APPLICATION – Enquiry – Conclusion dependent on outstanding notices under s19A TMA 1970 – Application dismissed

FIRST-TIER TRIBUNAL

TAX

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Applicants

- and -

ANTHONY LEONARD DEADMAN Defendant

DEADMAN CONFIDENTIAL PARTNERSHIP
ANTHONY LEONARD DEADMAN
SHARON DEADMAN

Appellants and Applicants

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

TRIBUNAL: Nicholas Aleksander (JUDGE)

Sitting in public in London on 25 February 2009

Ms KJ Singal of HM Revenue & Customs for the Applicants

SK Vanniasingham FCCA of Sam Vann and Co for the Defendant

© CROWN COPYRIGHT 2009


 


DECISION

The Hearing

1. This decision is in respect of a number of matters that were heard together relating to Mr and Mrs Deadman and the Deadman Confidential partnership.
2. The first was a summons for a penalty under s98(1)(b)(i) of the Taxes Management Act 1970 ("TMA") for failure to comply with a notice under s20 dated 18 September 2008 requiring Mr Deadman to produce statements of all offshore bank accounts, in whatever name, controlled or operated by him, for the period from 6 April 2000 to 5 April 2005 and for documents to show the source of all deposits in excess of £1000 into any such account. The summons for a penalty was issued under section 100C following the laying of an information by Ms Singal.
3. Secondly there were applications and appeals arising out of enquiries into the tax returns for the year ended 5 April 2006 of Mr Deadman and the Deadman Confidential partnership. These were:

(1) appeals against two notices requiring the delivery of documents and information issued under s19A TMA, one in respect of the partnership and one in respect of Mr Deadman

(2) an application under s28B(5) TMA for a closure notice in respect of the enquiry into the partnership's tax return for the year ended 5 April 2006

(3) an application under s28A(4) TMA for a closure notice in respect of the enquiry into Mr Deadman's tax return for the year ended 5 April 2006

4. Finally, there were appeals against two notices of further assessment for the year ended 5 April 2002 issued under s29 TMA, one in respect of Mr Deadman and one in respect of Mrs Deadman.
5. At the hearing, the Commissioners for Her Majesty's Revenue & Customs ("HMRC") were represented by Ms Singal. Mr and Mrs Deadman and the Deadman Confidential partnership was represented by his accountant Mr Vanniasingham of Sam Vann & Co. An agreed bundle of documents was presented to me. In addition I heard evidence from Mr Deadman and from Mr Arthur Haughey, an inspector of taxes.

The Background Facts

6. Mr and Mrs Deadman are both partners in the Deadman Confidential partnership. In 2000 and 2001 Mr Deadman's affairs were the subject of a full HMRC investigation. As part of that investigation, Mr Deadman submitted statements of assets and liabilities as at 29 August 2000 and 5 October 2001. Mr Deadman signed the certificate at the end of each of the statements confirming to his best knowledge that these were complete and accurate. Neither of the statements include any reference to any bank accounts held offshore. I note that contained in the bundle of documents are copies of letters from Mr Deadman's doctors stating that Mr Deadman became ill as a result of the stress - partially brought on by the stress of the enquiries in 2000/01, and that Mr Deadman continues to be on medication.
7. The personal tax return for Mr Deadman and the partnership return for the Deadman Confidential partnership for the year ended 5 April 2006 were received by HMRC before the filing deadline of 31 January 2007. HMRC's window within which to open an enquiry into those returns therefore expired on 31 January 2008. The partnership's tax return disclosed significant income, expenses and interest. Mr Deadman's personal tax return disclosed estimated interest from UK sources, payments to a personal pension fund, partnership profits and income from land and property. It did not disclose any income from foreign bank accounts.
8. On 18 December 2007, HMRC opened enquiries into the self assessment tax returns of Mr Deadman and the Deadman Confidential partnership for the period 2005/06. The notices opening the enquiries (under s9A TMA for Mr Deadman and s12AC for the partnership) each took the form of a letter from Mr Haughey to Mr Deadman. Mr Haughey wrote to Mr Deadman as regards the partnership's tax return, as Mr Deadman was the partnership's "nominated partner". In the letter relating to Mr Deadman's personal tax return, Mr Haughey stated, amongst other things, that HMRC had information that Mr Deadman had held one or more offshore bank accounts, and that interest on such accounts had not been declared. Mr Haughey asked Mr Deadman to supply statements for all offshore bank accounts held at any time in the preceding six years, together with various other items of information. A copy of these letters were sent to Mr Deadman's accountants, Sam Vann & Co. Mr Haughey separately wrote to Sam Vann & Co requesting information relating to the partnership's tax return.
9. There was then correspondence and telephone conversations between Mr Vanniasingham of Sam Vann & Co and Mr Haughey. Mr Haughey confirmed to Mr Vanniasingham that he was aware that December and January were extremely busy given the deadline for submitting tax returns was 31 January, and agreed to defer issuing formal notices requiring production of the documents and information until the end of January, and then giving Mr Deadman a further period within which to produce the documents. The formal notices under s19A TMA requiring Mr Deadman to produce these documents was issued on 14 February 2008, giving 30 days for Mr Deadman to comply. Copies of the s19A notices were sent to Sam Vann & Co.
10. The documents and information required by the s19A notices were as follows:

(1) As regards Mr Deadman personally:

(a) Statements for all offshore bank accounts held at any time in the last 6 years from the date each account was opened

(b) All other personal bank statements for the year ended 5 April 2006

(c) Details with supporting evidence of the source of deposits into the offshore accounts (at (a) above)

(d) Documents and underlying records to verify income and expenditure relating to the land and property entry on the tax return

(e) Evidence to support payment of personal pension contribution of £1543

(2) As regards the partnership:

(a) Documents to be provided the period 1 December 2004 to 30 November 2005 (if the information is held in computer form, a disk of the information should also be provided)

(a) Ledgers showing partnership incomings and outgoings

(b) Partnership bank statements for all accounts, paying in books, and cheque book stubs

(c) Statements for any partnership credit cards

(d) Invoices showing sales

(e) Invoices showing expenditure

(f) Any diary or appointment book detailing work to be undertaken or done

(b) Information required for the period 1 December 2004 to 30 November 2005

(a) Provide an analysis or schedule of the following figures on the Return:

(i) Debtors and prepayments £128,889

(ii) Trade creditors and accruals £49,640 and Sundry creditors £61,835 – total £111,475

(b) Do the accounts contain any estimated or non-vouched figures. If so provide the appropriate details

(c) Do the accounts contain any figures that are solely based upon assurances given by the partners. If so provide the appropriate details.

11. Mr Haughey raised further assessments against both Mr and Mrs Deadman on 15 January 2008 in respect of the tax year ended 5 April 2002. At the time Mr Haughey made the assessments, the tax year ended 5 April 2002 was about to go out of date, precluding HMRC from raising normal time limit assessments under s34(1) TMA 1970. Mr Haughey raised the assessment to protect HMRC' position by keeping the tax year ended 5 April 2002 open until his enquiries had been completed. The assessments charged of Mr and Mrs Deadman an additional share of partnership profits of £25,000 each and charged Mr Deadman to additional bank interest of £10,000. Appeals against both assessments were lodged on 28 January 2008.
12. There followed further correspondence between Mr Vanniasingham and Mr Haughey. On 17 April 2008, Mr Haughey wrote to Mr Vanniasingham stating that he was treating the letters as appeals against the s19A notices and as applications for the issue of closure notices under s28A(4) TMA.
13. Mr Vanniasingham was dissatisfied with the manner in which Mr Haughey had conducted his enquiries, and raised a complaint. As part of the process of reviewing the complaints, HMRC came to the conclusion that they did not have power under s19A TMA to request documents that related to periods other than those under enquiry, and that therefore the s19A notice relating to the personal tax return was only valid as regards the information relating to the offshore bank accounts for the tax year ended 5 April 2006. Mr S Dobbin (Mr Haughey's manager) wrote to Mr Vanniasingham on 4 July 2008 stating, amongst other things, that as they needed to see those statements, they intended to issue a notice under s20(1) TMA giving Mr Deadman an opportunity to provide those documents. In view of concerns expressed by Mr Vanniasingham as to his client's health, Mr Dobbin said that he would defer issuing the notices for a week to give Mr Vanniasingham an opportunity to discuss the prospective notice with his client, and to confirm that this does not represent a request for additional information beyond that previously requested in the s19A notice. The precursor notice under s20B(1) TMA was issued on 17 July 2008, and a copy was sent to Sam Vann & Co. This requested by 29 August 2008 statements for all offshore bank accounts, in whatever name, controlled or operated by Mr Deadman for the period from 6 April 2000 to 5 April 2005 together with documents to show the source of all deposits in excess of £1000 into these accounts. The precursor notice included a deadline of 29 August 2008 for Mr Deadman to make representations to the General Commissioners about the issue of the s20 notice. As the documents were not supplied by the deadline, application was made to the General Commissioners on 18 September 2008 for consent to issue a notice under s20(1), and such consent was given.
14. The s20 notice required delivery of the documents no later than 20 October 2008. The notice was served on Mr Deadman under cover of a letter dated 18 September 2008, and a copy was sent to Sam Vann & Co. In accordance with the requirements of s20(8E) TMA, Mr Haughey summarised in the covering letter his reasons for applying for the s20 notice, and referred to his precursor notice of 17 July 2008. As part of his explanation under s20(8E), Mr Haughey referred back to the deadline for submissions to the General Commissioners, but misquoted the deadline for submissions as being 29 August 2009 rather than 29 August 2008. This typographical error appears only in the covering letter, and not in the notice itself. The date for delivery of the documents, being 20 October 2008, is clearly stated on the face of the s20 notice. The typographical error appears in the part of the covering letter which describes the initial precursor notice, and from the context it is clear that it is a typographical error.
15. Quite separately from the enquiries being conducted by Mr Haughey, Mr Vanniasingham wrote to HMRC's Offshore Disclosure Unit in Shipley on 27 December 2007. This was followed up by a telephone call on 28 December 2007 and another letter on 28 December 2007. In his letters and telephone calls, Mr Vanniasingham stated to the Offshore Disclosure Unit that Mr and Mrs Deadman had only just become aware of the offshore disclosure arrangements, and requested an extension of time to allow them to disclose interest accruing under the offshore disclosure arrangements. Initially by a letter dated 8 January 2008, the Offshore Disclosure Unit refused to allow a disclosure, as the deadline for filing had passed, and advised Mr Vanniasingham that the disclosure should be made to the local inspector. However, following further correspondence with the Offshore Disclosure Unit in which Mr Vanniasingham stated that his clients had never received any notification of the facility from their bank or HMRC, by a letter dated 16 January 2008 the unit allowed Mr and Mrs Deadman an extension of time until 31 January 2008 to make a filing. The disclosure filings were made under cover of a letter dated 24 January 2008, and referred to undeclared interest for each of the years 2000/01 to 2006/7. At the same time £6,761 was remitted in payment of the undeclared offshore income, interest and 10% penalties. On 24 April 2008, the Offshore Disclosure Unit wrote to confirm that the payment had been accepted.
16. At no point did Mr Vanniasingham mention to the Offshore Disclosure Unit the fact that his clients' affairs were subject to an enquiry, nor did Mr Vanniasingham mention to Mr Haughey that he had made a disclosure to the Offshore Disclosure Unit. Mr Haughey only found out about the disclosures later in 2008. There is e-mail correspondence dated 5 March 2008 from Mr Boyce-Taylor (processing manager at the Offshore Disclosure Unit) to Mr Haughey stating that Mr Deadman's name and address was on the database that had been used to send notifications to individuals about the offshore disclosure letter. Mr Boyce-Taylor could not produce a copy of the letter sent to Mr Deadman, as the letters were printed automatically by an external company using the database in a "mail-merge" process. Although in their letter of 16 January the Offshore Disclosure Unit had made reference to the failure of both the bank and HMRC to notify Mr and Mrs Deadman of the disclosure facility, in a telephone conversation on 17 July 2008 Mrs Smithson (of the Unit) confirmed to Mr Haughey that the Unit had simply accepted Mr Vanniasingham's statements at face value and had made no enquiries to verify whether or not they were true.
17. It transpired during the course of Mr Deadman's evidence and the submissions made by Mr Vanniasingham, that Mr Deadman had obtained duplicate bank statements for the Royal Bank of Scotland Jersey accounts for the periods 2000/01 to 2006/07, and had given these to Mr Vanniasingham. Mr Vanniasingham had based the disclosures made to the Offshore Disclosure Unit in January 2008 on the information in these statements. Thus both Mr Deadman and Mr Vanniasingham were in possession of the bank statements requested in the s20 notice at the time it was served in September 2008, and had been in possession of these statements for many months.
18. None of the documents requested in the s20 notice have been delivered to HMRC. None of the documents or information requested in the s19A notice for the partnership have been delivered to HMRC. As regards the s19A notice for Mr Deadman personally, there has been partial compliance. Copies of statements for the offshore bank accounts for the period 1 July 2004 to 30 March 2007 were provided on 7 July 2008. There remains outstanding the documents and records relating to the land and property, the evidence supporting the personal pension contributions and the "other" (onshore) personal bank statements.
19. Whilst giving evidence before me, Mr Deadman was asked why he had not complied with the s20 Notice. He stated that he had problems with literacy and could and did not understand the correspondence from HMRC. For this reason he relied heavily upon his wife and Mr Vanniasingham to deal with correspondence and his tax affairs. It was clear from the submissions made to me during the course of the hearing by Mr Vanniasingham that he was aware of these issues and the reliance that Mr Deadman placed upon him.

Contentions advanced on behalf of Mr Deadman and the partnership

20. Mr Vanniasingham's principal contention on behalf of his client was that HMRC embarked on the enquiries as a result of the failure by Mr Deadman to disclose his offshore bank account. Mr Vanniasingham submits that Mr Deadman's failure to disclose these accounts would not have occurred but for the failure of the bank and HMRC to notify Mr Deadman of the offshore disclosure facility. Since Mr Deadman had subsequently made a full disclosure to the Offshore Disclosure Unit and paid tax, interest and penalties, and since this disclosure and payment had been accepted, there was no longer any need for these enquiries.
21. Further, Mr Vanniasingham asserts that HMRC's demands are too broad and onerous, and should be directed only to specific areas of concern - particularly given Mr Deadman's ill health.
22. Finally, as regards the offshore bank accounts, HMRC should be satisfied with the bank statements that had been disclosed, as these show that the only movements on the accounts have been interest earned on the account. Mr Vanniasingham asserts that bank statements were disclosed on a "voluntary basis". This is misleading, as the bank statements were only disclosed following the s19A notice.

The Offshore Disclosure Facility

23. During the course of 2007 HMRC wrote to many taxpayers notifying them about the offshore disclosure facility. It is not entirely clear what happened to the standard form of offshore disclosure letter that should have been sent to Mr Deadman. It appears from the documentary evidence before me that Mr Deadman was on the database of persons to whom such letters were sent. However Mr Deadman when giving oral evidence before me could not recall having received such a letter. Given his literacy problems, he says that he would have given any such letter to either his wife or to Mr Vanniasingham for them to deal with. I think it more likely than not that such a letter was sent to Mr Deadman, but because of his literacy problems he did not appreciate its importance, and that is was mislaid. However, the receipt or non-receipt of the letter is irrelevant to the issues before me. Mr Deadman is under a duty to disclose in his tax return all of his worldwide income, including the income from bank accounts held offshore. He failed to do so. Not only did he not return the income from his offshore bank accounts in his annual tax returns, he did not disclose the existence of the accounts during the course of the enquiry in 2000/01. The fact that Mr Deadman may possibly not have received the standard form of offshore disclosure letter does not excuse either his failure to return his offshore income on his annual tax return, nor does it excuse his failure to disclose the existence of the offshore bank accounts in the statements made as a result of the HMRC enquiries in 2000/01.
24. The fact that Mr and Mrs Deadman made disclosures and payments to the Offshore Disclosure Unit is also irrelevant to the issues before me. Booklet DS101 sets out the scope of the offshore disclosure facility. In signing the disclosure form (DS110) both Mr and Mrs Deadman acknowledge that they have read the booklet. It states on page 4 of the booklet that where HMRC have begun and investigation or enquiry into the affairs of any person, any disclosure should be made to the person conducting the enquiry. However Mr Vanniasingham did not mention the existence of the enquiry when he communicated to the Offshore Disclosure Unit, and did not mention to Mr Haughey that disclosures had been made to the Unit. There is nothing in the terms of the offshore disclosure facility as described in booklet DS101 which prevents HMRC from undertaking enquiries into the affairs of a taxpayer.

The Section 20 Notice

25. Mr Vanniasingham referred me to the typographical error in the covering letter sent with the s20 notice and the reference to the deadline of 29 August 2009 to make submissions to the General Commissioners. As that deadline has not passed, he submits that Mr Deadman has not failed to comply with the notice. I do not accept this submission. The s20 notice is clear on its face. The documents requested must be supplied by 20 October 2008. The reference to the 29 August 2009 deadline is in the covering letter, not the notice; it is quite clear from the context that the reference to 2009 is a typographical error, and does not relate to the deadline for the supply of the documents. The typographical error in the covering letter does not affect the validity of the notice, and does not excuse Mr Deadman's non-compliance.
26. Nor do I consider that Mr Deadman's literacy problems excuse compliance. HMRC were aware of Mr Deadman's health problems, and gave Mr Vanniasingham every opportunity to explain to Mr Deadman in advance of the precursor notice the reasons for the notice and its consequences. Mr Vanniasingham of Sam Vann & Co conducted all correspondence on behalf of Mr Deadman, and was fully aware of Mr Deadman's literacy issues and the need to explain matters to him.
27. None of the other submissions advanced by Mr Vanniasingham is relevant to Mr Deadman's failure to comply with the s20 notice. The reason why HMRC required the notice was clearly explained in Mr Dobbin's letter in July 2008. All of the relevant bank statements had been received by Mr and Mrs Deadman in order for them to be able to make the offshore disclosures in January 2008. They were therefore all readily available in September 2008 when the s20 notice was served.
28. Ms Singal asked for the maximum penalty of £300. The statutory penalty is "not exceeding £300"; that amount has been unchanged since 1989 so that in real terms the maximum is around half of what it was in 1989.
29. The maximum penalty is modest compared with the tax which is in issue. Furthermore the default has continued for a year without any substantive explanation or attempt at compliance. Compliance should involve no difficulty, as the documents which are the subject of the notice are to hand. I determine the penalty in the sum of £300.

Section 19A Appeals

30. The issue in relation to the appeals under s19A TMA is whether the documents and information sought under the notices is reasonably required by HMRC for the purposes of determining whether and, if so, the extent to which the tax returns which are the subject of the enquiry are incorrect or incomplete.
31. The only documents that have been provided to HMRC are copy bank statements for the period 1 July 2004 to 30 March 2007. HMRC acknowledge that s19A cannot be used to require the delivery of bank statements relating to periods prior to the period covered by the tax return. The delivery of these copy bank statements therefore satisfies the requirements of the s19A notice as set out in paragraph 9(1)(a)and (c) above.
32. I agree with HMRC that the request for the remaining documents and information is reasonable. I disagree with Mr Vanniasingham's submissions that the requests are too broad and unreasonably onerous. Without the information requested, Mr Haughey cannot check the tax returns and determine whether they are incorrect or incomplete. No evidence has been given that the documents and information sought are not germane to the tax affairs of either Mr Deadman or the partnership, or are not within the power or possession of either Mr Deadman or the partnership.
33. Therefore other than in respect of the offshore bank statements (where the documents sought have been supplied), I dismiss the appeals against the s19A notices.

Closure Notices

34. My decision in relation to the application for closure notices follows logically from my decision in relation to the s19A notices. The issue in relation to the applications under s28A(4) and s28B(5) is whether there are reasonable grounds for keeping the enquiries open. The onus is on HMRC to satisfy me that there are reasonable grounds for not issuing a closure notice. HMRC's submission is that s19A notices have been issued in relation to both enquiries, and that without the documents and information sought, HMRC are unable to come to any conclusions, as required by s28A(1) and s28B(1) respectively. I agree. Until Mr Deadman and the partnership provide the documents and information sought under the s19A notices, HMRC have no basis for reaching any conclusions in relation to the tax returns.

Section 29 Appeals

35. HMRC and Mr and Mrs Deadman agreed that the determination of the appeals against the further assessments for the tax year ended 5 April 2002 be postponed pending the results of the HMRC enquiries.
36. I agree, and therefore adjourn the hearing of the appeals against the further assessments.

Conclusions

37. My decisions are therefore as follows:

Penalty under s98 TMA for failure to comply with s20 Notice

38. I impose a penalty of £300 against Mr Deadman for his failure to comply with the notice issued to him under s20 TMA

Appeals against two notices under s19A TMA

39. I find that Mr Deadman has complied with the s19A notice issued to him personally as regards items 1a and 1c in the notice (relating to provision of bank statements for offshore accounts and documents and evidence relating to deposits made into the accounts), but I otherwise dismiss his appeal. I dismiss the appeal against the s19A notices issued to the Deadman Confidential partnership.

Applications for closure notices under s28A(4) and s28B(5)TMA

40. I dismiss the applications for closure notices in respect of the enquiries into Mr Deadman's personal tax return and the Deadman Confidential partnership tax return.

Appeals against further assessments to tax under s29 TMA

41. I agree to adjourn the hearing of the appeals against these assessments, with liberty to apply.

Nicholas Aleksander

TRIBUNAL JUDGE

RELEASE DATE: 27 April 2009

Authorities referred to in skeletons and not referred to in the decision:

R v IRC ex parte Archon Shipping Corporation (1998) 71 TC 203

Fox v Uxbridge General Commissioners (2001) 75 TC 42

Accountant v HM Inspector of Taxes (2000) SpC 258

HMRC v Sokoya [2008] EWHC 2132 (Ch)