D Midgley & Sons Ltd and Stuart Midgley v Revenue & Customs [2011] UKFTT 187 (TC) (17 March 2011)
[2011] UKFTT 187 (TC)
TC01056
Appeal number:
TC/2010/08041
& TC/2010/08049
Appeal
against Information Notices issued under Schedule 36 of Finance Act 2008 –
whether the information was reasonably required – whether Data Protection Act
1998 applies- whether Police and Criminal Evidence Act 1984 applies – whether
information required is unreasonable and onerous – appeal dismissed
FIRST-TIER TRIBUNAL
TAX
D. MIDGLEY
& SONS LTD AND STUART MIDGLEY Appellant
-
and -
THE COMMISSIONERS
FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Ms. J. Blewitt (Judge)
Sitting in public at Manchester on 18 February 2011
Mr. Stuart Midgley, the
Appellant, was unrepresented
Mr. A. Hall, instructed by the
General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. The
Appellant appealed against HMRC’s decisions on review dated 15 September 2010
upholding the issue of information notices under Schedule 36 of the Finance Act
2008 to D. Midgley & Sons Ltd and Mr. S. Midgley.
2. The
Appeal notices were lodged with the Tribunal on 13 October 2010. The grounds of
appeal in respect of D. Midgley & Sons Ltd were stated as being:
(a)
That the information requested is not required to be contained in the
Appellant’s tax return for the purpose of assessment or collection of tax and
therefore any release of the information would breach Section 29 (1) (c) of
the Data Protection Act 1998 (“DPA 1998”) and Section 12 of the Police and
Criminal Evidence Act 1984 (“PACE 1984”);
(b)
That stock and work in progress are estimates are based on the
Director’s lengthy experience of the market which should satisfy HMRC’s
request;
(c)
That certain items requested do not exist and
(d)
That HMRC Officers had previously seen the information requested and any
further request to see the records is onerous.
3. The
Notice of Appeal in request of Mr. Stuart Midgley stated the grounds of appeal
as being:
(a)
That the information requested is not required to be contained in the
Appellant’s tax return;
(b)
That the information requested is not within the Appellant’s possession
or power and
(c)
That the information is answered on the Appellant’s tax return.
4. At
the hearing HMRC confirmed that the Schedule 36 Notices had been revised to
take account of the Appellant’s contentions and that the information now sought
was as follows:
In respect of D. Midgley &
Sons Ltd:
(a)
A breakdown of the figure of “Other Creditors” figure of £312,872,
describing who these relate to and how much is owed to each.
(b)
A full analysis of any transactions conducted through any director’s
loan account in the 12 month period ending 31 March 2008.
(c)
A full analysis of any transactions conducted through any other loan
accounts in the 12 month period ending 31 March 2008.
(d)
Sales and purchase day books or equivalent ledgers for the 12 month
accounting period ending 31 March 2008
(e)
Cash book or petty cash book for the 12 month accounting period ending
31 March 2008.
(f)
Any add sheets or journals which describe how the raw data contained in
the company records arrives at the final figures in the accounts.
(g)
Business bank statements and accompanying paying-in books and cheque
book stubs for the 12 month period ending 31 March 2008.
And in respect of Mr S. Midgley:
(h)
The address of the bungalow owned by the Appellant, saying when this was
acquired and at what cost.
(i)
The purpose for which the bungalow was used in the year ended 5 April
2009, indicating whether the property has been let.
(j)
The addresses of any other property owned by the Appellant or in which
the Appellant has an interest, other than the bungalow and the Appellant’s home
at 85 Riley Lane.
5. During
the course of the hearing, there was agreement between the parties to revise
the information notices further on the basis of the Appellant’s evidence that
items listed at paragraph 4 (e) and (f) above did not exist. Those points were
therefore deleted from the information notice in respect of D. Midgley &
Sons Ltd and item at paragraph 4 (d) reworded as:
“Please supply all sales invoices, purchase invoices or
receipts, petty cash receipts, cheque book stubs, paying-in books or slips,
wages records and PAYE records. These records to be supplied for the 12 month
period ending 31 March 2008.”
Background
6. Mr
Binner, an Inspector of Taxes for HMRC was contacted by his colleague, Mr
Healey, on 16 March 2009. Mr Healey was reviewing the PAYE returns of D.
Midgley & Sons Ltd and raised concerns relating to explanations given to
him by the Appellant concerning loan accounts used by the Appellant’s sons for
payment of wages from the Appellant Company. The pay records showed that the
Appellant’s two sons had earned £7,200 in 2001/2002 but that this had reduced
to £5,200 in 2002/2003 and 2003/2004. Mr Healey stated that he had asked the
Appellant about this and was told that by the Appellant that his sons had
deposited wages in earlier years to loan accounts with the company,
subsequently withdrawing the accumulated deposits in 2004/2005 and 2005/2006.
Mr Healey’s concerns related to how the Appellant’s sons could afford to do
this and why they would do this; nether being directors of the Appellant
Company. Mr Healey stated that the Appellant had been unable to provide company
records detailing these transactions as the originals had been lost and only a
reconstruction could be provided.
7. On
receipt of this information, Mr Binner stated that he checked the company
accounts going back to 2002 but found no entries relating to loan accounts
operated by the Appellant’s sons. The accounts to the year ended 31 March 2003 showed
entries in connection with a loan account for the Appellant, but the records
thereafter did not contain any further entries in this regard, which Mr Binner
noted coincided with the cessation of the Appellant Company’s accountants in
January 2004.
8. Mr
Binner also noted that the company accounts to 31 March 2008 included a large
figure for “other creditors” but no further explanation or breakdown. Further
checks by Mr Binner raised concerns as the accounts to 31 March 2008 show that
the Appellant did not take any director’s remuneration or dividends for that
year, and the previous two years showed that the Appellant only took £2,500 per
year.
9. Mr
Binner checked the Appellant’s personal returns and pay records for his wife
who was an employee of the Appellant Company and based on these records he
assembled an income schedule which indicated that Mr and Mrs Midgley had a
shortfall in income of £6,011 in the period ended 31 March 2008.
10. As a result of
these concerns, Mr Binner accompanied Mr Healey to his next meeting with the
Appellant on 24 August 2009. Mr Binner stated that on this occasion he
explained to the Appellant that he was examining the company corporation tax
returns and accounts. A further meeting was arranged on 17 November 2009.
Following the meeting on 17 November 2009, Mr Binner came to the conclusion
that the Appellant did not wish to provide responses to questions on a
voluntary basis and he therefore decided to address his queries through formal
enquiries.
The case for HMRC
11. Mr Hall explained
that the Data Protection Act 1998 (“DPA 1998”) arose out of a 1995 European
Directive which stated that personal information should be protected. He
submitted that the DPA 1998 did not apply to the Appellant’s case as there are
a number of criteria which must be fulfilled, namely that the personal data
must be kept in a relevant filing system and that the information must be
registered with the Information Commissioner. Mr Hall submitted that the
Appellant had provided no evidence to show that the requirements were
satisfied; that there was no relevant filing system and that the Appellant was
not registered. Mr Hall submitted that there was a distinction between business
records (which he contended were in the possession of the Appellant) and
information covered by the DPA 1998. Mr Hall further submitted that HMRC are
entitled to use Section 29 DPA 1998 to protect information, but that the
provisions are not available to the Appellant.
12. Mr Hall
submitted that in respect of the information sought at paragraph 4 (d), (e), (f)
and (g) above, the Tribunal had no jurisdiction to hear the appeal. Mr Hall
contended that the information requested arise from entries on the Appellant’s
accounts and returns and are statutory records. Mr Hall referred the Tribunal
to Schedule 36, Part 5, Section 29 (2) of the Finance Act 2008 which
specifically precludes a taxpayer appealing against a requirement in an
information notice to produce any document which forms part of the taxpayer’s
statutory records.
13. Mr Hall accepted
that PACE 1984 Section 12 was relevant to the proceedings by virtue of Schedule
36, Part 4 Section 19 of the Finance Act 1998, but stated that the Appellant
had failed to satisfy the requirements of the provision.
14. In oral evidence
to the Tribunal, Mr Binner confirmed the contents of his witness statement as
true and accurate. He stated that the meeting with the Appellant on 24 August
2009 was short as the Appellant had stated he was still trying to obtain
original records relating to his sons’ loan accounts. Mr Binner stated that at
the meeting on 17 November 2009 the Appellant had stated that he no longer had
any original records to support the figures relating to the loan account
balances, but that at the time he would have had records showing the
input/output using debit/credit cash column sheets. Mr Binner confirmed that
the Appellant stated that in respect of his own loan account with the company,
the records were at home and therefore not available for inspection by Mr
Binner at that time, which, he noted, conflicts with the Appellant’s contention
that the records do not exist.
15. Mr Binner
confirmed that the Appellant was asked at the meeting about his ownership of a
property used as accommodation by employees of the Appellant Company and that
the Appellant had confirmed that he personally owned a second property, a
bungalow, which had been unoccupied since its acquisition. Mr Binner noted that
letting income had been declared on the Appellant’s personal return for the
year ended 5 April 2002, that there had been no declaration that the income had
permanently ceased and that there were no further declarations of letting
income on later returns. Mr Binner stated that the information sought by HMRC
relating to the bungalow and any other property owned by the Appellant came as
a result of the uncertainty as to whether the declared letting income related
to the bungalow (which the Appellant had stated was unoccupied) or another
property and that HMRC could not verify the position without the address, which
the Appellant had not given.
16. Mr Binner stated
that his colleague, Mr Healey, had explained to the Appellant the options
available to HMRC as to how to resolve the issues raised at the meeting and
that he had added that formal enquiries may be opened.
17. Mr Binner was cross
examined by the Appellant about the notes of two meetings which had been
exhibited in the bundle. Mr Binner declined to comment on his colleague, Mr
Healey’s note of a meeting with the Appellant on 5 February 2009 at which Mr
Binner was not present. Mr Binner stated that the note of the meeting with the
Appellant on 17 November 2009 had been written by his colleague and signed by
him as accurate. Both exhibits had annexed to them correspondence to the
Appellant dated 10 February 2009 and 24 November 2009, which invited the
Appellant to sign and return a copy of the notes with any amendments he may
wish to make. Mr Binner confirmed that copies had never been returned by the
Appellant.
18. Mr Binner stated
that he sought the information contained on the Schedule 36 Notices as his
income schedule, which was based on the information available to him, indicated
that the Appellant may have an additional source of income and that the
information given by the Appellant in respect of the bungalow needed
verification. Mr Binner accepted that he recalled the Appellant saying at one
of the meetings that he had savings which he had used for living expenses,
however Mr Binner did not accept that this negated the necessity for the
Appellant to provide the information requested. Mr Binner disputed the
Appellant’s assertion that all records had been visibly present at the
Company’s premises during the meetings on a desk next to Mr Healey and that he
could not comment as to what, if any, records had been seen by Mr Healey.
19. Mr Binner
accepted the Appellant’s point that the schedule prepared by him was not
accurate; the point being that it was prepared on the basis of the limited
records available to him and served as no more than an indicator as to where
his concerns arose.
The Appellant’s Case
20. The Tribunal was
assisted by the Appellant’s skeleton argument and two witness statements dated
17 January 2011 and 14 February 2011.
21. The Appellant
gave oral evidence to the Tribunal in which he stated that he would be in
breach of the DPA 1998 and PACE 1984 if he were to provide HMRC with the
personal data requested under Schedule 36. The Appellant contended that the
personal information held by him included PAYE records, names of investors and
Company records, all of which he considered to be personal information. The
Appellant stated that he kept a filing system as required and that there is no
requirement for him to register as a private, as opposed to public, data
controller.
22. The Appellant
agreed with the principle that the provisions did not apply in respect of
collection of taxes, but stated that he did not believe that this applied to
his case on the basis that the information sought by HMRC, such as the names of
the “other creditors”, is not required to be included on his returns and cannot
therefore be said to be related to an assessment or collection of taxes.
23. The Appellant
explained that he runs a small limited company with 6 employees and that his
calculations of debits and credits takes no more than 5 minutes, in which he
makes jottings which he then shreds once the accounts are approved. The
Appellant stated for this reason a number of the items sought by HMRC simply do
not exist and that he keeps information, such as that relating to creditors, in
his head.
24. The Appellant,
under cross examination, accepted that he was aware of his obligations under
Section 221(1) and (2) of the Companies Act 1985, which requires him to keep
accounting records “sufficient to show and explain the company’s
transactions and shall be such as to...disclose with reasonable accuracy, at
any time, the financial position of the company at that time...” The
Appellant contended that the legislation does not specifically require a breakdown
of information to be given and confirmed that he would not disclose the names
of “other creditors” who he described as three investors.
25. The Appellant
was referred by Mr Hall to the Section 12 of PACE 1984, upon which the
Appellant sought to rely. The Appellant contended that the wording of the Act
did not require him to satisfy the provisions of the subsections, but that the
legislation could be applied without reference to the words highlighted in bold
below:
12 “In this Part of
this Act “personal records” means documentary and
other records concerning an individual (whether living or dead) who can be
identified from them and relating—
(a)to his physical or mental health;
(b)to spiritual counselling or assistance given or to be given to him;
or
(c)to counselling or assistance given or to be given to him, for the
purposes of his personal welfare, by any voluntary organisation or by any
individual who—
(i)by reason of his office or occupation has responsibilities for his
personal welfare; or
(ii)by reason of an order of a court has responsibilities for his
supervision.”
26. The Appellant
contended that the information in existence had already been inspected by Mr
Healey on his first visit to the Appellant’s premises. He stated that there had
been at least 7 meetings with HMRC, each lasting approximately 3 hours and that
he viewed the situation as one large enquiry into his affairs. The Appellant
stated that Mr Healey had made no discovery but had stated to him that due to
pressure from his boss he was looking for a settlement from the Appellant. The
Appellant subsequently accepted that Mr Binner may not have seen the
information requested, but that as Mr Healey had seen the information, the
request under Schedule 36 by HMRC was onerous and unreasonable.
27. The Appellant
referred the Tribunal to his brief notes of the meetings which took place on 5
February 2009 and 17 November 2009 and stated that he disputed the records
exhibited by HMRC. The Appellant stated he had never received a copy of HMRC’s
notes and had no time to check them.
28. The Appellant
accepted in cross examination, when shown a letter confirming a meeting on 18
June 2009, that Mr Binner had attended his premises on that date but found that
the Appellant was not present and that his recollection of the meetings with
HMRC may not be wholly accurate.
29. The Appellant
contended that the information sought under the information notices is not
reasonably required, and that for over 30 years the Appellant has never denied
HMRC any information.
Decision
30. The issue for
the Tribunal to determine is whether the information sought by HMRC as set out
in the revised Schedule 36 Notices is reasonably required for the purpose of
checking the Appellant’s tax position.
31. The Appellant
raised a number of legal and factual arguments, and each will be dealt with in
turn.
32. As regards the jurisdiction
of the Tribunal, HMRC contend that by virtue of Schedule 36, Part 5 Section 29
of Finance Act 2008:
29(1)Where a taxpayer is given a taxpayer notice,
the taxpayer may appeal to the First-tier Tribunal against the notice or any
requirement in the notice.E+W+S+N.I.
(2)Sub-paragraph (1)
does not apply to a requirement in a taxpayer notice to provide any
information, or produce any document, that forms part of the taxpayer's
statutory records
as defined by Schedule 36, Part 9 Section 62 of the
Finance Act 2008 and with reference to Section 12B of the Taxes Management Act
1970, Section 221 of the Companies Act 1985 and Section 386 of the Companies
Act 2006, in respect of those records which are statutory records this Tribunal
has no jurisdiction to hear the appeal The Tribunal is bound by the legislation
and therefore finds as a fact that it has no power to allow an appeal in
respect of those items requested by HMRC, as set out at paragraph 4 (d) (as
revised) and (g) of this Decision, which form part of the Appellant’s statutory
records.
33. In respect of
the Appellant submission that he would be in breach of the DPA 1998 if he were
to reveal information as to the “other creditors” referred in his accounts, or
information as to the bungalow the Tribunal carefully considered the provisions
relied upon by the Appellant and his submissions thereon. The Tribunal rejected
the contention that the Appellant fell within the provisions of the Data
Protection Act 1998. The Tribunal accepted Mr Hall’s submission that the Appellant
had failed to provide any evidence upon which the Tribunal could conclude that
the Appellant could be deemed a “data controller” and that the information
sought by HMRC was protected as “personal data”. The Tribunal took the view
that the records referred to by the Appellant were business records as opposed
to data protected by the DPA 1998. However, even if the Appellant had so
satisfied the Tribunal, the provisions of Section 29 clearly state that
personal data processed for the purpose of:
“...the assessment or
collection of any tax or duty or of any imposition of a similar nature,...are exempt from the first data protection principle.”
34. The Appellant
relied upon Section 9A (4) of the Taxes Act 1970 (which relates to personal
individuals) and in the alternative Schedule 18, Paragraph 24 of the Finance
Act 1998 (which relates to company records) to support his argument that no
breakdown of items such as “other creditors” is required to be contained within
his tax returns and consequently does not pose any tax implications. The
Tribunal found that the statutory provision relied upon by the Appellant does
not restrict the powers of HMRC under Schedule 36, which allows HMRC to require
any information “reasonably required...for the purpose of checking the taxpayer’s
tax position”. The Tribunal therefore did not accept the Appellant’s argument.
35. The Tribunal
rejected the Appellant’s submission that the information sought by HMRC does
not relate to the assessment or collection of tax. The Tribunal found as a fact
that the legislation under Schedule 36, Part 1 Section 1 of the Finance Act
2008 which refers to information required “for the purpose of checking the
taxpayer’s tax position” includes, by virtue of Part 9 Section 64 of the
Act, “past, present and future liability to pay any tax”. The Tribunal
found as a fact that the information sought by HMRC was to verify the
Appellant’s returns and accounts and to ensure that all sources of income and
liabilities had been declared and paid.
36. The Tribunal
considered the Appellant’s submission that he would be in breach of Section 12
of PACE 1984 were he to provide the information sought by HMRC. The relevant
section is set out at paragraph 24 of this Decision. The Tribunal rejected the Appellant’s
interpretation of the statute. On the Appellant’s own evidence, none of the
subsections within Section 12 applied to the information he sought to protect.
The Tribunal found that at least one of the subsections (a) to (c) must be
satisfied in order for the legislation to apply, otherwise the words “...and
relating...” would be rendered meaningless, which cannot have been the
intention of Parliament. The Tribunal therefore rejected the Appellant’s
submission and found that the provisions of PACE 1984 did not prevent the
disclosure of information required by HMRC in the Schedule 36 Notices.
37. The Tribunal
considered the Appellant’s evidence that HMRC had already seen the information
requested. The Tribunal found that the Appellant had not distinguished between
the differing roles of Mr Healey and Mr Binner. The Tribunal did not hear
evidence from Mr Healey, but accepted Mr Binner’s evidence that his involvement
with the Appellant related to PAYE records. In evidence the Appellant referred
to the records being made available to Mr Healey during his meetings with the
Appellant. The Appellant appeared less certain as to whether Mr Binner had seen
the records and the Tribunal found as a fact that his recollection was
inaccurate, as evidenced from the meeting with which the Appellant had forgotten
he did not attend. The Tribunal accepted the clear recollection of Mr Binner
that he had not seen the records or information requested in the Schedule 36
Notices and consequently found that these were reasonable required for the purpose
of checking the Appellant’s tax position.
38. The Tribunal did
not accept the Appellant’s submissions that providing information, which the
Appellant agreed exists, is onerous.
39. The Tribunal
considered the Appellant’s assertion that he had been threatened by Mr Healey
to agree to a settlement and the notes of the two meeting with HMRC as recorded
by the Appellant were considered. The Tribunal did not find that this issue
necessarily went to the matter to be determined; namely whether the information
sought by Mr Binner is reasonable required, but found as a fact that it
preferred the evidence of Mr Binner as to the fact that the various avenues
that could be pursued by HMRC were explained to the Appellant and that this had
not been intended as a threat in any way. The Tribunal preferred the record of
the meeting on 17 November 2009 exhibited by HMRC over that of the Appellant,
on the basis that the note was full and therefore more likely to be
representative of a 2 or 3 hour meeting as described by the Appellant, unlike
the Appellant’s brief note containing 9 lines, which the Tribunal found as a
fact was a generalisation of the points which had appeared most salient to the
Appellant.
40. The Tribunal
concluded that the information sought in the amended Schedule 36 Notices is
reasonably required for the purpose of checking the Appellant’s tax position.
41. The appeal is
dismissed.
42. 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.
TRIBUNAL JUDGE
RELEASE DATE: 17 March 2011
