First-tier Tribunal (Tax)

[2010] UKFTT 531 (TC)

TC00785

 

 

Appeal number: TC/2009/16159

 

Appeal against penalties for non compliance with Section 19A Taxes Management Act 1970 notices- Appellant claimed to have produced all the documents he had available

 

 

FIRST-TIER TRIBUNAL

 

TAX

 

 

 

MR SAYED HABASHI Appellant

 

 

- and -

 

 

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

 

 

 

 

TRIBUNAL: MRS.S.M.G.RADFORD (TRIBUNAL JUDGE) MR.D.SPELLER

 

Sitting in public at Holborn Bars, London EC1N 2NQ on 21 September 2010

 

 

Mr H. Evans Maillard for the Appellant

 

MR C.Ward for the Respondents

 

 

© CROWN COPYRIGHT 2010

DECISION

 

1.       This is an appeal against penalties imposed on the Appellant under Section 97AA(1)(a) and (b) of the Taxes Management Act 1970 (“TMA”) for not complying with formal 19A TMA notices for each of the tax years 2001/02 to 2006/07.

2.       A penalty determination for each year was issued was issued under Section 97AA (1)(a) in the fixed amount of £50 on 18 March 2009. No appeals were received.

3.       A penalty determination for each year was issued under Section 97AA(1)(b) in an amount of £300 on 18 April 2009. Appeals were made on 11 May 2009.

Background and Facts

4.       In 2006 HMRC became aware that the Appellant was in receipt of rents from the letting of property. The Appellant had not notified HMRC that he was in receipt of such income. In order to bring the Appellant’s tax affairs up to date self assessment returns for each of the four years from 2001/02 to 2004/05 were issued on 31 October 2006.

5.       The completed self assessment returns were submitted in February 2007. Each return declared rents from the letting of property. The 2004/05 return contained additional information concerning a property which had been sold giving rise to a capital gain. The gain was in the region of £110,000 and a payment on account of £38,000 in respect of the arising capital gains was made in February 2007. The capital gains tax should however have been paid by 31 January 2006.

6.       An enquiry under Section 9A TMA into the 2004/05 tax return was opened on 4 July 2007. Following receipt of some business records further documents from the Appellant. HMRC also asked the Appellant for information in respect of certain bank transactions.

7.       HMRC was notified in December 2007 that Mr Salam, an accountant, had been authorised by the Appellant to act on his behalf.

8.       In the absence of the documents and information requested on 23 August 2007 it was decided to open a further Section 9A enquiry into the 2005/06 tax return and the 9A notice was issued on 17 December 2007.

9.       A partial reply to the letter of 23 August 2007 was received on 21 January 2008 from the accountant, Mr Salam. However because all the information requested had not been submitted and the same queries related to the other tax years it was decided to open Section 9A enquiries into the 2001/02, 2002/03 and 2003/04 tax returns.

10.    Further partial replies were received on 20 March 2008 and 27 May 2008 from Mr Salam. A meeting was held with Mr Salam and the Appellant on 27 June 2008 when the accuracy of the Appellant’s returns was discussed and the position regarding penalties explained to him.

11.    In order to determine whether the returns were incorrect or incomplete the Appellant was asked to provide HMRC with evidence of the source of non business income deposited into the NatWest bank account. Although it had been stated that the difference was loans from the family no evidence had been produced to substantiate this. Certificates of loan interest paid were also requested together with evidence of some of the expenditure claimed against the rents received.

12.    In view of the ongoing enquiry it was decided to open a 9A enquiry into the 2006/07 tax return and a letter was issued on 1 August 2008.

13.    Correspondence continued with the accountants in an attempt to obtain the items requested but it was not forthcoming. On 16 January 2009 formal Section 19A notices were issued to the Appellant requesting the information and documents for each year which was under enquiry.

14.    On 24 February 2009 as no response had been received to the Section 19A notices a reminder was issued informing the Appellant that if the required information was not produced within the next fourteen days penalties would be imposed.

15.    By 18 March 2009 the notices had not been complied with and penalty determinations were made under Section 100(1) TMA. The £50 penalty arose under Section 97AA(1)(a) and was imposed in respect of each Section 19A notice.

16.    By 18 April 2009 neither an appeal against the penalties had been made nor the notices complied with.  A further penalty determination for each year was then made to charge £10 per day x thirty days for each year, a total of £300 per year.  The Appellant appealed.

Legislation

17.    Section 19A states:

19A(1) This section applies where an officer of the Board gives notice of enquiry under

section 9A(1) or 12AC(1) of this Act to a person (“the taxpayer”).

19A(2) For the purpose of the enquiry, 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

may 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–

(i) the return is incorrect or incomplete, or

(ii) in the case of an enquiry which is limited under section 9A(5) or 12AC(5) of this Act,

the amendment to which the enquiry relates is incorrect, and

(b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose.

18.    Section 97AA states:

97AA(1) Where a person fails to comply with a notice or requirement under section 19A(2), (2A)

or (3) of this Act or paragraph 6(2) or (3A)(b) of Schedule 1A to this Act, he shall be liable, subject

to subsection (4) below–

(a) to a penalty which shall be £50, and

(b) if the failure continues after a penalty is imposed under paragraph (a) above, to a further

penalty or penalties not exceeding the relevant amount for each day on which the failure

continues after the day on which the penalty under that paragraph was imposed (but

excluding any day for which a penalty under this paragraph has already been imposed).

97AA(2) In subsection (1)(b) above

“the relevant amount” means–

(a) in the case of a determination of a penalty by an officer of the Board under

section 100 of this Act, £30;

(b) in the case of a determination of a penalty by the Commissioners under section 100C

of this Act, £150.

19.    Section 100 TMA states:

100(1) Subject to subsection (2) below and except where proceedings for a penalty have been

instituted under section 100D below, an officer of the Board authorised by the Board for the

purposes of this section may make a determination imposing a penalty under any provision of the

Taxes Acts and setting it at such amount as, in his opinion, is correct or appropriate.

Appellant’s submissions

20.    The Appellant’s representative submitted that the Appellant had tried very hard to sort matters out. After the meeting held between HMRC, him and his accountant he did not receive a copy of the meeting notes or plan of action either from his accountant. He claimed that although HMRC had started letters to him with copies to his accountant latterly he did not receive the HMRC correspondence which he assumed was going only to his accountant.

21.    He had relied on Mr Salam who did not do a thorough job as a consequence of which he had now appointed a new accountant.

22.    There was a breakdown in communications between HMRC, him and his accountant.

23.    He had produced all the documents he could but nevertheless had penalties imposed on him.

HMRC’s Submissions

24.    HMRC submitted that the problem was that only some of the information requested had been supplied.

25.    The Appellant had unexplained deposits in his bank account which he claimed were loans from family members but had provided no evidence of this.

26.    HMRC had received some credit card and bank statements but no evidence to account for the difference in the bankings.

27.    HMRC had received two statements of loan interest from the Bank of Scotland showing capital and interest repayments concerning 2 Gratton Terrace which consisted of two flats which were rented out but needed the statements for the other relevant years and any other mortgages held by the Appellant.

28.    All records should be retained for five years and ten months after the end of the tax year to which they relate. The documents sought were clearly in the Appellant’s possession or power.

29.    Although the Appellant had stated that there were no other records available he had not demonstrated what steps he had taken to obtain the bank records, loan interest statements and credit card statements. He could have approached the insurance companies concerning the insurance bills, the council in respect of the council tax bills and supplied the names and addresses of those who had provided labour at the properties.

30.    Although banks may charge for the service they will usually provide copy bank statements and insofar as the finance charges claimed it should have been possible to provide the information from which the figures claimed on the return were taken.

31.    In all the circumstances HMRC submitted that the documents were reasonably required for the purposes of checking the Appellant’s tax returns.

32.    The Section 19A notices were valid because there was a Section 9A enquiry for each relevant tax year. There was no appeal against the notices which had not been complied with by 18 April 2009 when the first penalties were imposed. They had still not been complied with at 8 March 2010.

Findings

33.    The Tribunal had sympathy with the Appellant who had failed to comply with the notices in part as a result of a failure on the part of his previous accountant to advise him as to an adequate response.

34.    Nevertheless the Tribunal found that the Appellant had failed to communicate with HMRC until the imposition of the penalties although he should have realised when he received the Section 19A notices that his and the accountant’s responses were inadequate.

35.    The penalties are laid down by statute and HMRC have no power to overturn the will of parliament. This was confirmed in the case of Stubbs v HMRC by Special Commissioner David Demack when he stated:

“These Tribunals are a statutory creation and must apply the law as parliament enacted it; fairness and equality are not matters they can take into consideration in arriving at their decisions”.

HMRC could in fact have imposed even larger penalties in accordance with Section 97AA for the non compliance with the Section 19A notices and the Tribunal found that in all the circumstances the penalties were correctly imposed.

Decision

36.    The appeals against the penalty notices are hereby dismissed and the penalties are hereby confirmed.

37.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

 

 

MRS.S.M.G.RADFORD

 

TRIBUNAL JUDGE

 

RELEASE DATE: 1 November 2010