DECISION
1. This
was an appeal under paragraph 29(1) of Schedule 36 to the Finance Act 2008
(c.9) (“Schedule 36”, introduced by section 113 of that act). The appeal was
against a notice given under paragraph 1 of that schedule requiring documents
to be supplied to HMRC by the appellant. By summary decision, we allowed the
appeal and set aside the notice under paragraph 32(3)(c) of Schedule 36. At
HMRC’s request, we now give our full decision.
2. In
our summary decision, we concluded that condition B in Schedule 36 was not met
and that paragraph 1(1) of Schedule 36 was not satisfied either. We now
however reverse our conclusion that paragraph 1(1) was not satisfied. We
conclude that it was satisfied, for reasons explained later in this
decision. That does not however make a difference to the outcome of this
appeal, given our conclusion on condition B.
3. Given
that we are changing our mind as to paragraph 1(1), we gave the parties the
opportunity to comment on our draft decision. This was in line with paragraph
53 of Space Airconditioning Plc v Guy & Anor [2012] EWCA Civ 1664
(14 December 2012). HMRC’s response was to welcome our revised conclusion on
paragraph 1(1). As to the appellant’s response, we address that in the part of
this decision relating to paragraph 1(1) of Schedule 36.
Background
4. The
appellant submitted a tax return for the tax year ended 5 April 2009. The
return showed that he had self-assessed his status for tax purposes as not
resident, and not ordinarily resident, in the UK.
5. HMRC
purported to open an enquiry into the tax return.
6. The
appellant’s case on residence, as put to HMRC, was that he had emigrated on 22
March 2008. He said he first went to Malaga for a short stay, and then moved
to Gibraltar. He told HMRC that he had put his car and home on the market. He
said however that he then rented out his former home, rather than selling it,
due to the poor property market. He told HMRC that he owned another property
in the UK which his daughter occupied.
7. HMRC
sought a variety of information in the course of the purported enquiry. The
appellant provided information as requested, except that he refused to supply
bank, building society and credit card statements requested.
8. In
light of that refusal, HMRC gave formal notice seeking those documents. The
notice was given under paragraph 1 of Schedule 36 and was dated 15 February
2012. That is the notice under appeal (“the notice”). It sought “Statements
for all Bank/Building Society and credit card accounts operated between 22
March 2008 to 5 April 2009” (“the statements sought”). It was common ground
that those dates were inclusive.
9. When
HMRC first gave the notice, HMRC believed that they were giving it in the
course of an enquiry. They later accepted that the notice was not so given.
They did not however withdraw the notice; instead they relied on different
grounds to justify it, as explained below.
10. The tax year in
relation to which the notice sought documents was 2008-09. But, as seen above,
the notice also sought documents in relation to a short period (22 March to 5
April 2008) preceding that tax year. This was in light of the appellant’s
assertion that he had, by the start of that tax year, ceased to be resident in
the UK. It was common ground that the relevance of that assertion was this:
that the appellant’s dividends from a UK company would be chargeable at a
higher rate of tax if he were UK-resident than if he were non-resident. The
difference in tax was said by HMRC to be approximately £200,000.
11. By letter dated
14 March 2012, the appellant appealed to HMRC against the notice. An HMRC
internal review upheld the notice on 24 April 2012. The appellant appealed to
this tribunal by notice dated 18 May 2012.
The legislation
12. Schedule 36
provides, so far as relevant—
“1.—(1) An officer of Revenue and Customs may by
notice in writing require a person (“the taxpayer”)—
(a)
to provide information, or
(b)
to produce a document,
if
the information or document is reasonably required by the officer for the
purpose of checking the taxpayer's tax position.
(2)
In this Schedule, “taxpayer notice” means a notice under this paragraph.
[…]
6.—(1) In this Schedule, “information notice”
means a notice under paragraph 1, 2, 5 or 5A.
[…]
7.—(1) Where a person is required by an
information notice to provide information or produce a document, the person
must do so—
(a)
within such period, and
(b)
at such time, by such means and in such form (if any),
as
is reasonably specified or described in the notice.
[…]
21.—(1)
Where a person has made a tax return in respect of a chargeable period under
section 8, 8A or 12AA of TMA 1970 (returns for purpose of income tax and
capital gains tax), a taxpayer notice may not be given for the purpose of
checking that person's income tax position or capital gains tax position in
relation to the chargeable period.
[…]
(3)
Sub-paragraphs (1) and (2) do not apply where, or to the extent that, any of
conditions A to D is met.
(4)
Condition A is that a notice of enquiry has been given in respect of—
(a)
the return, or
(b)
a claim or election (or an amendment of a claim or election) made by the person
in relation to the chargeable period in respect of the tax (or one of the
taxes) to which the return relates (“relevant tax”),
and
the enquiry has not been completed.
[…]
(6)
Condition B is that, as regards the person, an officer of Revenue and Customs
has reason to suspect that—
(a)
an amount that ought to have been assessed to relevant tax for the chargeable
period may not have been assessed,
(b)
an assessment to relevant tax for the chargeable period may be or have become
insufficient, or
(c)
relief from relevant tax given for the chargeable period may be or have become
excessive.
[…]
29.—(1) Where a taxpayer is given a taxpayer
notice, the taxpayer may appeal against the notice or any requirement in the
notice.
[…]
32.—(1)
[Not relevant].
(2)
[Not relevant].
(3)
On an appeal that is notified to the tribunal, the tribunal may—
(a)
confirm the information notice or a requirement in the information notice,
(b)
vary the information notice or such a requirement, or
(c)
set aside the information notice or such a requirement.
[…]
(5)
Notwithstanding the provisions of
sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007 a decision
of the tribunal on an appeal under this Part of this Schedule is final.”.
The test for a valid notice to be given
13. By virtue of
paragraphs 1(1) and 21(1) and (3) of Schedule 36, two requirements must be met
for a valid notice to be given under paragraph 1 of that schedule. The first
requirement, in paragraph 1(1), is that the information or document sought by
the notice must be reasonably required, by the officer giving the notice, for
the purpose of checking the taxpayer's tax position. The second requirement,
by virtue of paragraph 21(1) and (3), is that at least one of conditions A to D
must be met.
14. It was common
ground that the burden of proof was on HMRC to show both that paragraph 1(1)
was satisfied and that one of conditions A to D was met.
15. When the notice
was issued, HMRC believed it to be issued in the course of an enquiry such as
is mentioned in condition A in paragraph 21(4) of Schedule 36. HMRC’s initial
position therefore was that condition A was met and that the notice was justified
on the grounds that condition A and paragraph 1(1) were both satisfied.
16. However, HMRC
had, by the time of the hearing, accepted that they had not effected valid
service to open an enquiry. They accepted therefore that there was no valid
enquiry for the purposes of condition A, and that condition A was therefore not
met. HMRC relied instead on condition B in paragraph 21(6) of Schedule 36.
Condition B – paragraph 21(6)(a) Schedule 36 – as
regards the appellant, has an HMRC officer reason to suspect that an amount
that ought to have been assessed to relevant tax for the chargeable period may
not have been assessed?
17. We found that
condition B was not met for the following reasons.
18. The way in which
HMRC relied on condition B was put in their statement of case as follows—
“29.
HMRC’s contention is that the information already provided by Mr Betts gives a
partial picture of his movements and more particularly his ties to the UK in the relevant period. Furthermore, based on that information there remains a doubt
that he had left the UK permanently by 6 April 2008 to become not resident.
The requested information will complete that picture and, if it shows
that his ties remained substantially in tact [sic], condition B is satisfied.
The Inspector will be able to show that an amount which ought to have assessed
[sic] may not have been. The information is therefore reasonably required for
the purpose of checking Mr Betts tax position and the appeal should be
dismissed.”. [emphasis added]
19. There are three
ways in which condition B may be met. These are set out in paragraph 21(6)(a)
to (c) of Schedule 36. Mr Birkett explained that his reliance on condition B
was based on the first of those three ways, in paragraph 21(6)(a) of Schedule
36. That paragraph provides that “Condition B is that, as regards the person,
an officer of Revenue and Customs has reason to suspect that…(a) an amount that
ought to have been assessed to relevant tax for the chargeable period may not
have been assessed”.
20. We asked Mr
Birkett whether he was really saying, as indicated in paragraph 29 of HMRC’s
statement of case (set out above), that he needed the information in order
to satisfy condition B. Mr Birkett replied “yes”.
21. Mr Gordon
submitted that that response from Mr Birkett would seem to kill the case. Mr
Gordon asked us therefore to allow the appeal on the basis of that response.
22. We agreed with
Mr Gordon that it appeared to be the wrong way round to seek the documents in
order to satisfy condition B. The position appeared rather to be that
condition B must be satisfied in order for the documents to be validly sought.
We thought it fair however to explore HMRC’s position further.
23. Mr Birkett
submitted that “the ‘reason to suspect’ [for the purposes of paragraph
21(6)(a)] is that if the appellant was resident in the UK, then there will be an amount that ought to have been assessed”. We asked Mr Birkett
whether the “reason to suspect” which he asserted was just a general statement
of the taxation regime; that is, if you are resident, then you pay tax
(which Mr Gordon accepted as a general principle). Mr Birkett replied “that is
correct”. Mr Birkett further submitted that it was the respondent’s view that
the bank statements “will support or not” the assertion that the appellant was
not resident in the UK.
24. We asked Mr
Birkett what it was that made him think that the appellant was UK resident in the tax year in question. Mr Birkett replied that the nature of the enquiry
that had been undertaken meant that there were very many complex factors; not
simply where the appellant was, but also his personal ties to the UK.
25. We asked Mr
Birkett “But what is your reason to suspect that the appellant was resident?
Or, do you not have a reason, but if you had the information, that would
clarify whether you did have a reason?”. Mr Birkett replied “Thank you. That
is correct”.
26. Mr Gordon again
submitted, in light of that response, that HMRC had no reason to suspect that
an amount that ought to have been assessed to relevant tax for the chargeable
period may not have been assessed. That appeared to us to be a correct summary
of HMRC’s position as stated up to that point. We remained concerned however
to ensure that HMRC had adequate opportunity to explain their case and whether
that was a correct summary of their position.
27. We therefore
invited Mr Birkett to expand further on his case.
28. Mr Birkett told
us that new information had emerged from information provided by the appellant
to HMRC. Mr Birkett submitted, in reliance on R on the application of
Davies and another and Gaines-Cooper v HMRC [2011] UKSC 47 (“the Gaines-Cooper
case”), that the test for residence was “multi-factorial”. His statement of
case had explained this at paragraph 15—
“15.
Key to the question of whether an individual has left the UK, and may be
considered not resident, can hinge on the extent to which personal, family,
social and business ties have been maintained or retained in the UK and the
extent frequency and reasons for their return to the UK.”.
29. HMRC’s review
conclusions letter of 24 April 2011 had set out the following grounds for
requiring the statements sought—
“the
fact that:
• you stayed in Malaga rather than Gibraltar between
22 March and 3 April 2008 during which your partner’s daughter accompanied you
both on what was for her a “study holiday”
• you returned to the UK on 3 April 2008
• it can’t be demonstrated that you did not stay at
one of your UK based properties between 3 and 6 April 2008
then
[sic] there are sufficient grounds to request sight of the relevant statements
in order to check that your lifestyle and personal expenditure was commensurate
with the statement that you became non UK resident on 22 March 2008 and not on
some later date.”.
30. So, HMRC relied,
in their review conclusions letter of 24 April 2011, on three grounds for
requiring the statements sought. Those were that the appellant first went to
Malaga accompanied by his partner’s daughter on what was for her a study
holiday; that the appellant returned to the UK on 3 April 2008; and that it
could not be demonstrated that the appellant did not stay at one of his UK
properties between 3 and 6 April 2008.
31. At the hearing,
Mr Birkett submitted that the case presented by the appellant to HMRC in
relation to his tax return was of breaking of ties with the UK. Mr Birkett went on to list nine factors which he said were relevant to that case and
were significant in the information received from the appellant. Mr Birkett
later summed up those nine factors under four headings: first, that the
appellant still had a flat that his daughter lived in; second, that the
appellant still owned a property that was available to him (the Walsall
property); third, that the appellant had a continuing business in the UK and
was financially reliant on the income from that business; and fourth, that the
appellant had made repeated visits to the UK in the tax year in question.
32. Despite those
four headings, we think it fair to HMRC’s case that we should address all nine
factors which Mr Birkett presented to us. We deal also, as a tenth factor,
with the first of the grounds in the review conclusions letter (that the
appellant first went to Malaga accompanied by his partner’s daughter on what
was for her a study holiday); it was not clear that Mr Birkett had abandoned
that ground.
33. The nine factors
on which Mr Birkett relied, plus a tenth taken from the review conclusions
letter, were—
(1)
the appellant’s daughter occupied the appellant’s property;
(2)
the appellant owned another property in the UK;
(3)
the appellant was physically present in the UK at midnight on 5 April
2008 (that is, at the start of the tax year in question);
(4)
the appellant made 22 visits to the UK during the tax year in question;
(5)
the appellant’s principal source of income was in the UK in the tax year in question;
(6)
the appellant’s departure from the UK was “so close” to the end of the
preceding tax year;
(7)
the appellant had drawn no dividends in the two tax years preceding the
tax year in question;
(8)
Gibraltar “is a known low-tax place”;
(9)
the amount of the dividend which the appellant drew in the tax year in
question;
(10)
the appellant stayed in Malaga rather than Gibraltar between 22 March
and 3 April 2008 during which his partner’s daughter accompanied them both on
what was for her a “study holiday”.
34. Mr Gordon did
not dispute the truth of factors 1, 2, 3, 4, 7, 9 and 10. Since this is not an
appeal against a decision as to residence, we do not make findings on those
factors. We proceed however, for the purposes only of the present appeal, on
an assumption that those factors are true. (As to the other factors listed
above, factor 5 was not accepted by Mr Gordon. Factors 6 and 8 were subjective
assertions rather than assertions of fact.)
Consideration of factors on
which HMRC relied
35. We deal with
each of Mr Birkett’s stated factors in turn.
(1) Appellant’s daughter’s occupation of appellant’s
property
36. The first factor
which Mr Birkett said was significant was that the appellant’s daughter
remained in the UK after the appellant left the UK and that she was living in a
property owned and mortgaged by the appellant which he had bought for her to
live in.
37. Mr Birkett
accepted however that the appellant did not himself live in the property. And
Mr Birkett did not suggest that the appellant had, or even may have,
bought the property with a view to living in it himself in the future, and in
particular, with a view to living in it in the tax year in question. Nor did
Mr Birkett suggest that the appellant had, or even may have had, any
intention at any relevant time of living in the property himself.
38. In addition, Mr
Gordon pointed out that the appellant’s daughter had attained the age of 18 on
22 January 2008. That was some months before the appellant ceased to reside in
the UK. Mr Birkett did not dispute that the appellant’s daughter had attained
majority on that date. Mr Gordon submitted that the appellant did not
therefore have a dependent daughter in the UK at the time that the appellant
ceased on the appellant’s case to be UK-resident. We accept that.
39. Mr Gordon
submitted that, in any event, owning a property occupied by one’s major
daughter is not the test for residence. Mr Birkett did not dispute that
either.
40. In our judgment,
therefore, Mr Birkett’s first factor did not help him to show that condition B
was met.
41. We accept
however that, while any one single factor may not give “reason to suspect”
within the meaning of paragraph 21(6)(a), a number of factors may combine to
give such reason to suspect. (This applies too for our consideration of the
other nine factors.) As we set out later in this decision however, that was
not asserted in this case.
(2) Ownership of another property in the UK
42. The second
factor which Mr Birkett said was significant was this: that the appellant
owned another property in the UK, 80 Gillity Avenue (“the Walsall property”),
and, he said, the possessions were not removed from that property until 18
April 2008, nearly two weeks into the tax year. Mr Birkett accepted that the
property was rented out in June 2008.
43. Mr Birkett’s
submission was that the Walsall property was available to the appellant from
when the appellant left the UK on 22 March 2008, so from prior to the start of
the tax year in question, until June of that year, including during the
appellant’s UK visit spanning the start of the tax year. That visit was what
the appellant’s agent called, in his letter of 18 January 2012 to HMRC, “an
unexpected return to” the UK from Thursday 3 April 2008 to Sunday 6 April
2008. That letter said that the Walsall property “was not used by [the
appellant] post the 22 March 2008” and that the accommodation during the visit
was at Inn Keepers.
44. This second
factor, availability of the Walsall property, overlapped with the second and
third of the grounds mentioned in the review conclusions letter dated 24 April
2011.
45. It appeared that
HMRC’s argument as to residence, based on the Walsall property, would be
twofold. It would be based on the mere availability of that property to the
appellant, even if he did not stay in it. It would also be based on the notion
that that availability meant that the appellant may have stayed in that
property.
46. We accept that
the Walsall property was available to the appellant in the period from 22 March
to the time it was rented out in June 2008, including during the appellant’s UK visit of 3 to 6 April 2008. By “available”, we mean “available in the limited sense
that the property was not occupied by anyone else”. The appellant did not
suggest that the property was not so available during that period. Our finding
on this is relevant to the tribunal’s conclusion later in this decision that
paragraph 1(1) of Schedule 36 was satisfied.
47. That
availability does not however assist HMRC in showing that condition B was met.
The mere availability of the property, in the circumstances of this case, did
not in our judgment give HMRC reason to suspect that the appellant may have
been resident in the UK at some time during the period of that availability.
We so find in view of what we say below about the possessions being packed up.
Nor did the availability of the Walsall property give HMRC reason to suspect,
in our judgment, that the appellant may have stayed in the property. We so
find for two reasons. The first relates to the possessions being packed up.
The second relates to the council tax exemption.
Ownership of Walsall property - Possessions packed up
48. The first reason
that the availability of the Walsall property does not help HMRC on condition B
is this: Mr Birkett accepted that the possessions in the Walsall house were
packed up in March 2008. He also accepted that the reason the possessions were
not shipped out of the UK until 18 April was “due to the haulier’s schedule”.
It was not clear whether it was asserted and accepted that all the furniture
was packed up (that is, whether “possessions” included all furniture). But, in
any event, Mr Birkett’s assertion was that any possessions which were packed up
were still in the property, rather than at a storage unit.
49. It was not clear
from the evidence before us whether the possessions remained in the Walsall
property in their packed-up state, or whether they had, by the time the
appellant arrived in the UK on 3 April, been moved to a storage unit. On the
one hand, there was the Invoice & Order Confirmation dated 11/04/08 from
Elite European Ltd (page D57). That invoice envisaged collection from the Walsall property rather than from a storage unit. On the other hand, there was the
appellant’s letter to the council dated 20 March 2008. That letter requested a
council tax exemption and said that the appellant “has made arrangements for
furniture at the property for 2 or 3 days after [22 March] to be removed and
placed in storage”. There was also an email on the appellant’s behalf from a
Mr John Locke dated 14 April 2008 (page D59). That email might suggest that
the possessions remained at the property. The email was not however clear on
that point.
50. It was not
however necessary for us to make a finding as to whether the possessions, and
which of them, remained in the Walsall property in their packed-up state prior
to being shipped out of the UK (especially as this was not an appeal against a
decision on residence). Even if the possessions did remain in the property in
their packed-up state, Mr Birkett had accepted that they were packed up. That acceptance
was in our judgment an acceptance that such of the possessions as were packed
up were not readily available for use during a stay at the property.
51. That does not of
course mean that it was impossible for the appellant to stay in the property;
we address that later in this decision in our conclusion on paragraph 1(1) of
Schedule 36 (paragraphs 113 to 129 below). But there is nothing in our
judgment in or arising from the evidence about the packed-up possessions to
give reason to suspect that the appellant may have stayed in the Walsall property during the tax year in question. Nor did mere availability of the
property give reason to suspect that the appellant had not sufficiently broken
the tie with the UK that the Walsall property might be said to represent; even
on HMRC’s case, the property was not readily usable. Finally, there was
nothing in the mere availability of the property in its unready state to give
reason to suspect that ties to the UK other than that property had not been
sufficiently broken (indeed, Mr Birkett did not suggest otherwise).
Ownership of Walsall property - Council tax exemption
52. As to HMRC’s
point that the appellant may have stayed in the Walsall property, we said above
that there are two reasons why the availability of the property does not help
HMRC. The first reason is at paragraphs 48 to 51 above. The second reason is
that Mr Birkett did not dispute that the appellant was granted a council tax
exemption from 25 March 2008 for the Walsall property on the ground that the Walsall property was unfurnished. Mr Gordon told us that the reason that the exemption ran
from 25 March rather than from 22 March (the day on which the appellant said he
had moved out) was that the appellant’s letter to the council (D54) seeking the
exemption said that the appellant had arranged for the furniture to be removed
from the property “2 or 3 days after” 22 March 2008. Mr Birkett did not appear
to dispute that that was the reason that the exemption commenced three days
after 22 March. Nor did he say that there was evidence to suggest that the
exemption may have been wrongly granted.
53. Mr Birkett told
us that he did not know whether he had reason to suspect that the appellant
had, or even may have, stayed at the Walsall property during the appellant’s UK
visit of 3 to 6 April. In view of that, and of paragraphs 45 to 52 above, we
find that HMRC have not shown that availability of the Walsall property from 22
March until June 2008 gave reason to suspect that an amount that ought to have
been assessed to relevant tax for the chargeable period may not have been
assessed as regards the appellant.
54. Mr Birkett did
not address us on whether there was any reason to suspect that the appellant
had, or may have, stayed at any other of the appellant’s “UK based properties”.
(3) Appellant was physically present in the UK at midnight on 5 April 2008
55. The third factor
which Mr Birkett said was significant was that the appellant was physically
present in the UK at midnight on 5 April 2008 (during the visit of 3 to 6
April). In other words, the appellant was (which the appellant accepted) in
the UK at the start of the tax year in question.
56. The agent’s
letter dated 18 January 2012 explained that this visit was for one meeting with
the appellant’s solicitors, due to take place on Friday 4 April. The letter
also explained that there was no flight available for the return journey on the
Saturday; instead the appellant was booked, said the letter, on the 7 am flight
out of the UK on Sunday 6 April (as it happened, the meeting was brought
forward to the Thursday according to the letter). Mr Birkett did not dispute
that the appellant had left the UK again on the 7 am flight on Sunday 6 April.
57. Two points
prevented HMRC from showing that this factor gave “reason to suspect” within
the meaning of paragraph 21(6)(a) in our judgment. First, Mr Birkett accepted
that the appellant’s visit to the UK of 3 to 6 April was a business visit.
Second, Mr Birkett accepted too that, as Mr Gordon submitted, being physically
present in the UK at midnight on 5 April 2008 did not of itself undermine the
appellant’s claim to have become non-resident by then.
58. In our judgment,
therefore, Mr Birkett’s third factor did not help him to show that condition B
was met.
(4) 22 visits to the UK during the tax year
59. The fourth
factor which Mr Birkett said was significant was that the appellant had made an
admitted 22 visits to the UK during the tax year in question. Mr Birkett
confirmed that HMRC accepted that the visits listed at pages D3 to D6 were the
only visits the appellant made to the UK during the tax year in question.
There was some suggestion in the papers that the number of admitted visits was
in fact 26, not 22. But that point was not in issue and we do not need to
decide it. What was important was what Mr Birkett accepted, which we consider
undermines his reliance on this fourth factor. He accepted—
(1)
that although the visits accounted for 68 days’ presence in the UK, the
appellant spent only 42 midnights in the UK in the course of those visits;
(2)
that four of the visits comprised purely four connections in the UK between connecting flights in the course of two holidays;
(3)
that the remaining visits (whether that amounted to 18 or 22) were for
business; and
(4)
that repeated business visits did not of themselves necessarily amount
to residence.
60. Mr Birkett
submitted nevertheless that repeated business visits suggested that the
appellant had not broken all ties with the UK. Mr Gordon replied, in reliance
on the Gaines-Cooper case, that the appellant did not have to have
broken all ties with the UK in order to have ceased to be UK-resident for tax
purposes. Mr Birkett did not dispute that.
61. In light of what
Mr Birkett accepted in relation to the admitted visits, those visits did not in
our judgment give HMRC reason to suspect that an amount that ought to have been
assessed to relevant tax for the chargeable period may not have been assessed
as regards the appellant.
62. In our judgment,
therefore, Mr Birkett’s fourth factor did not help him to show that condition B
was met.
63. We do however
find that the admitted visits gave HMRC cause to want to check the appellant’s
tax position. This finding is relevant to the tribunal’s conclusion later in
this decision as to paragraph 1(1) of Schedule 36.
(5) “Appellant’s principal source of income was in
the UK”
64. The fifth factor
which Mr Birkett said was significant was that the appellant’s principal source
of income for the tax year in question was in the UK. Mr Birkett based this
assertion, he said, on the fact that the dividend from the appellant’s UK company was by far the biggest part of the income on the appellant’s tax return.
65. Mr Birkett
submitted that this suggested that the appellant was financially reliant on the
UK. That in turn suggested, said Mr Birkett, a tie that had not been broken
with the UK.
66. Mr Gordon
submitted that it was not necessarily the case that the appellant’s principal
source of income was in the UK. He pointed out that there could be substantial
offshore income that would not be shown on the tax return. Mr Birkett did not
dispute that. Mr Gordon submitted therefore that Mr Birkett’s assertion that
the appellant’s principal source of income for the tax year in question was in
the UK was a mere assumption and not a fact or evidence. Mr Birkett did not
dispute that either.
67. In our judgment,
therefore, Mr Birkett’s fifth factor did not help him to show that condition B
was met.
(6) Appellant’s departure from the UK was “so close” to end of preceding tax year
68. The sixth factor
which Mr Birkett said was significant was that the appellant’s date of
departure from the UK was so close to the end of the preceding tax year.
69. Mr Birkett did
not however explain why this gave him reason to suspect that an amount that
ought to have been assessed to relevant tax for the chargeable period may not
have been assessed as regards the appellant.
70. It was of course
open to the appellant to choose to be non-resident in the UK for the tax year in question. It would not be surprising that, if he did make that
choice, he would depart shortly before the beginning of the tax year in
question. In our judgment, that does not without more give reason to suspect
that the appellant was, or may have been, only “pretending”, as Mr Gordon put
it, to have ceased to be resident by the start of the tax year.
71. In our judgment,
therefore, Mr Birkett’s sixth factor did not help him to show that condition B
was met.
(7) No dividend drawn in the preceding two years
72. The seventh
factor which Mr Birkett said was significant was that the appellant had drawn
no dividends from his company in the preceding two years.
73. Mr Birkett did
not however explain why this gave him reason to suspect that an amount that
ought to have been assessed to relevant tax for the chargeable period may not
have been assessed as regards the appellant.
74. Mr Gordon
explained that no dividend had been taken in previous years because the
appellant took his income by way of salary in those years. That did not appear
to be disputed by Mr Birkett. It was not in any event clear that it was
relevant.
75. In our judgment,
therefore, Mr Birkett’s seventh factor did not help him to show that condition
B was met.
(8) Gibraltar “a known low-tax place”
76. The eighth
factor which Mr Birkett said was significant was that “Gibraltar is a known
low-tax place presenting a risk because people like to say they live in Gibraltar so as to pay less tax”.
77. Mr Birkett did
not however explain why, if at all, this gave him reason to suspect that the
appellant may be only pretending to have ceased to be UK-resident. Nor did Mr
Birkett explain why, if at all, it gave him reason to suspect that an amount
that ought to have been assessed to relevant tax for the chargeable period may
not have been assessed as regards the appellant.
78. In our judgment,
therefore, Mr Birkett’s eighth factor did not help him to show that condition B
was met.
(9) Amount of dividend
79. The ninth factor
which Mr Birkett said was significant was that the appellant drew a dividend
from his UK company in the tax year in question of some £808,000. Mr Birkett
said that that had triggered HMRC’s belief that the appellant would have a
reason to be treated as not resident in the UK.
80. Mr Gordon
accepted that, “if a dividend is paid of that magnitude, and the taxpayer is
not resident, then the tax bill will be lower. That quite understandably gives
the Revenue reason to be interested. But that is not the same as having
a reason to suspect”. We agree. In addition, a person may choose to be
non-resident in the knowledge that that will assist his tax position. But we
do not accept that that choice, of itself, gives reason to suspect that the
appellant may be only pretending to be non-resident, as Mr Gordon put it. Nor
do we accept that that choice, of itself, gives reason to suspect that an
amount that ought to have been assessed to relevant tax for the chargeable
period may not have been assessed as regards the appellant.
81. In our judgment,
therefore, Mr Birkett’s ninth factor did not help him to show that condition B
was met.
(10) Appellant stayed in Malaga rather than Gibraltar
between 22 March and 3 April 2008 accompanied by partner’s daughter on what was
for her a “study holiday”
82. It was not
clear that this tenth factor was still relied on by HMRC. Mr Birkett did not
develop it before us. The significance, from HMRC’s point of view, of the stay
in Malaga seemed to be that the appellant did not go direct to Gibraltar prior to the start of the tax year. However, that was explained in the
appellant’s agent’s letter of 18 January 2012. Mr Birkett did not address us
on whether and how the Malaga stay was nevertheless significant. We did not
discern for ourselves anything in this tenth factor which gave reason to
suspect that an amount that ought to have been assessed to relevant tax for the
chargeable period may not have been assessed as regards the appellant.
HMRC’s closing submission as to condition B
83. In light of the
nine factors on which he expressly relied, Mr Birkett submitted that “we have
been presented with an argument that the appellant had become not resident.
But the picture that has emerged does not give that clarity. The bank
statements may help; I cannot say that they will help”.
84. Mr Birkett did
not submit that any one of the nine factors on which he expressly relied gave
reason to suspect that an amount that ought to have been assessed to relevant
tax for the chargeable period may not have been assessed as regards the
appellant. But nor did Mr Birkett submit that, taken together, those
factors gave reason to suspect that an amount that ought to have been assessed
to relevant tax for the chargeable period may not have been assessed as regards
the appellant.
85. Rather, Mr
Birkett submitted that “the factors were part of the reason to suspect.
But the bank statements may give us other factors which add to the overall
picture. And that could be for or against. And the inspector will,
once in possession of that, make that informed decision; that is, whether there
are sufficient factors present to say that there was a loss of tax”.
86. This meant, Mr
Birkett submitted, that without the bank, building society and credit card
statements, HMRC were not in a position to dispute any of the detailed
explanations of the appellant’s case set out in the agent’s letter of 18
January 2012. That letter set out details such as the appellant having
disposed of his car, where he stayed and why he first went to Spain. Mr Birkett said that HMRC had not been able to dispute any of the assertions in
that letter, but that “the bank statements may assist”.
87. In fairness to
HMRC, we note that HMRC do not have to be in a position definitely to dispute
any of the appellant’s assertions as to residence, including those in the
agent’s letter of 18 January 2012. The test in paragraph 21(6)(a) for
condition B to be met is not that there be reason to suspect that an amount
that ought to have been assessed to relevant tax for the chargeable period was
not assessed. It suffices to meet condition B if, as regards the
appellant, there is reason to suspect that an amount that ought to have been
assessed to relevant tax for the chargeable period may not have been
assessed. So, having reason to suspect (as opposed to merely suspecting
without reason) that the appellant’s assertions may not be true would
suffice.
88. But Mr Birkett
did not assert that either. We had given him the opportunity to explain away,
in effect, his initial position, which was that he needed the statements sought
in order for condition B to be met. His closing position (paragraphs 83 to 86
above) brought him however full circle; he needed the statements, he said,
because they “may” give him reason to suspect that an amount that ought to have
been assessed to relevant tax for the chargeable period may not have been
assessed.
Conclusion as to condition B
89. On HMRC’s case
as summed up by Mr Birkett, condition B was in our judgment clearly not met.
He was in agreement that none of the information held by HMRC, either singly or
taken together, gave reason to suspect that an amount that ought to have been
assessed to relevant tax for the chargeable period may not have been assessed
as regards the appellant. Mr Birkett’s case was that he sought additional
information on the basis that the additional information may, when added
to the information already held by HMRC, give the “reason to suspect” required
by paragraph 21(6)(a).
90. But it is clear,
in our judgment, that in order for condition B to be met, there has to be
reason to suspect that an amount that ought to have been assessed to relevant
tax for the chargeable period may not have been assessed as regards the
appellant. That is the plain and ordinary meaning of paragraph 21(6)(a), and
we see no reason to go behind that. Seeking information or documents in order
to try to meet condition B is simply the wrong way round in our judgment.
91. We did however
attempt to discern for ourselves whether the factors on which Mr Birkett relied
gave reason to suspect that an amount that ought to have been assessed to
relevant tax for the chargeable period may not have been assessed as regards
the appellant.
92. We found that
they did not, for the following reasons.
93. First, at their
highest, all that the nine factors showed, even on HMRC’s own case, was that
there remained some ties with the UK; in particular, a major daughter, a
tenanted property and income from a UK company. But Mr Birkett did not dispute
Mr Gordon’s contention that the appellant did not have to have broken all ties
with the UK in order to have ceased to be UK-resident for tax purposes.
94. Second, Mr
Birkett did not point us to anything at all that he could say might give reason
to suspect that any part of the appellant’s case as to residence may not
be true. Mr Birkett fairly and commendably accepted certain points, and did
not dispute others, as set out above under each of the factors he mentioned.
His position on those points undermined in our judgment Mr Birkett’s ability to
rely on the nine factors as giving reason to suspect that an amount that ought
to have been assessed to relevant tax for the chargeable period may not have
been assessed as regards the appellant.
95. We accept that
some if not all of the nine factors on which HMRC relied may have given HMRC
cause to be interested in whether the appellant’s case as to residence
was true. After all, there was a lot of tax at stake. But the notice under
appeal was not, as Mr Gordon pointed out, given in the course of an enquiry.
HMRC had lost that opportunity. They could not therefore rely on the more
generous terms of condition A as compared with those of condition B. Being
interested does not suffice to meet condition B in our judgment.
96. In our judgment,
therefore, HMRC did not discharge the burden on them to show that condition B
was met. That suffices to mean that the appeal must succeed, regardless of our
conclusion on paragraph 1(1), to which we now turn.
Paragraph 1(1) of Schedule 36 – were the statements
sought reasonably required for the purpose of checking the appellant’s tax
position?
97. We said above
that we are reversing our initial conclusion as to paragraph 1(1) of Schedule
36.
98. Paragraph 1(1)
provides—
“1.—(1) An officer of Revenue and Customs may by
notice in writing require a person (“the taxpayer”)—
(a)
to provide information, or
(b)
to produce a document,
if
the information or document is reasonably required by the officer for the
purpose of checking the taxpayer's tax position.”.
99. Our conclusion
is that paragraph 1(1) of Schedule 36 was indeed satisfied. That is, the
statements sought, or at least those statements so far as they showed
expenditure in the tax year in question, were reasonably required by HMRC for
the purpose of checking the appellant’s tax position.
100. Our reasons
for concluding that paragraph 1(1) was satisfied are set out at paragraphs 113
to 129 below.
101. We supplied
this decision in draft to the parties. On advice from their counsel, the
appellant’s agents asked, in response to that draft—
“It
is unclear what has caused the Tribunal’s change of heart concerning paragraph
1(1). The Appellant is aware of no communications from HMRC making additional
submissions and would wish to assume that none was made which has not been
copied to him. The Tribunal is respectfully asked to clarify the position.”.
We confirm that we received no post-hearing
correspondence of any kind from HMRC except their submission in response to the
appellant’s costs application (which of course we did not take into account in
writing this decision). We would not take into account a submission unless we
were sure that the appellant had had the opportunity to respond to it. The
only reason for our change of mind concerning paragraph 1(1) is that our
deliberations in drafting the full decision led us unanimously to conclude that
we were initially wrong on paragraph 1(1). We considered it just and proper to
correct that error in the full decision, having first given the parties the
opportunity to comment, as we have done.
HMRC’s submissions as to paragraph 1(1) of Schedule 36
102. Mr Birkett
submitted that the statements sought were reasonably required because, when
someone is moving abroad, they can make new banking arrangements, although they
would not have to. He said however that he would not expect to see on the
statements payments for mobile ‘phone bills, utility bills, supermarket bills
and social expenditure in the UK. He said that the statements could also show
the interaction between the appellant and the UK company from which the
appellant drew a dividend or between the appellant and an employer. The
implication from Mr Birkett’s submission was that the presence of such items on
the statements sought could suggest that the appellant’s ties with the UK had not been sufficiently broken to cease residence.
103. Equally
however, Mr Birkett pointed out that the statements sought may actually reflect
expenditure consistent with that of a visitor, that is, of a person who is not
UK-resident. In other words, said Mr Birkett, the statements may actually
support the appellant’s case as to residence. Mr Birkett gave hotel bills as
an example of expenditure which may be shown on the statements sought and which
could support the appellant’s case as to residence. Mr Birkett emphasised that
the request for the statements was “neutral”. He said it was consistent with
residency enquiries and that it was reasonable in order to check all the facts.
He cited the Gaines-Cooper case in support of the proposition that
enquiries as to residence are multi-layered. He cited Hankinson v HMRC
[2009] UKFTT 384 (TC) and Barrett v HMRC Spc00639 (27 September 2007) in
support of the proposition that bank statements are important as part of the
evidence-gathering process.
104. In response
to Mr Gordon’s reliance on the HMRC Charter and manuals (paragraphs 108 to 112
below), Mr Birkett submitted that “the manuals apply to a majority of
enquiries, but residency is unique”.
Submissions for the appellant as to paragraph 1(1) of
Schedule 36
Lifestyle indicators
105. Mr Gordon
submitted that all the “lifestyle indicators” suggested by Mr Birkett as being
potentially evidenced by the statements sought were already accepted by the
appellant.
106. Mr Gordon
explained this as follows. If, he said, the appellant owns a property in the UK, there are very likely to be transactions through the UK bank account which relate to
that property. In particular, said Mr Gordon, the appellant did not dispute
that the appellant paid for utilities for the Walsall property in the tax year
in question, since it was not rented out until June 2008, which Mr Birkett had
accepted. So the statements sought would, said Mr Gordon, show utility
bill payments for the Walsall property. But, he said, that would do no more
than confirm what the appellant had already told HMRC.
107. Similarly,
Mr Gordon submitted, if the appellant knows he is going to have ongoing visits
to the UK, the appellant might well maintain a UK sim card. But, submitted Mr
Gordon, the tribunal’s main concern is not which mobile ‘phone operator the
appellant used; the tribunal’s main concern is, he said, residence. He
submitted that “social activity has already been highlighted as negligible”,
and that the appellant had passed through the UK en route to other parts of the
world.
HMRC guidance
108. Mr Gordon
took us to an extract from the HMRC Charter. He had cited it as follows in his
skeleton argument—
“Furthermore,
it is respectfully suggested that the HMRC Charter can be invoked when
determining what is and what is not reasonable. That provides, so far as is
relevant:
|
3
Treat you as honest
We
know that the great majority of people want to get things right.
Unless
we have a good reason not to,
we
will:
·
presume you are telling us the
truth
·
accept that you will pay what
you owe and only claim what you are entitled to
·
explain why we need to ask you
questions and why we have decided to check your records
·
only question what you tell us if
we have good reason to.”
|
109. Mr Gordon
said that no reason had yet been suggested by HMRC to rebut the presumption of
honesty, and that there was no suggestion by HMRC that any facts asserted by
the appellant were suspected to be incorrect.
110. Mr Gordon also
relied orally on the following HMRC manuals, which he had supplied to us on the
morning of the hearing—
-
“CH207320 – How to do a compliance
check: establishing the facts: asking for information: private bank accounts”
-
“EM1561 – Opening the Enquiry:
Information Request: Full Enquiry – Business Taxpayer”
-
“EM1570 – Opening the Enquiry:
Information Request: Full Enquiry – Non Business Taxpayer”.
111. Mr Gordon
cited from manual CH207320 that—
“non-business
bank accounts should not be requested as a matter of course”.
He also cited the following from manuals EM1561 and
EM1570—
“In
checking entries for business income you may consider that sight of the non
business bank, building society or credit card details is required. You can
ask for private records at the start of your enquiry if means have been
identified as a risk or you have already established, for example through
telephone contact with the agent, that the accounts are not based on a complete
and effective record keeping system. See CH207320+ for further guidance on
requesting private accounts.” (EM1561)
“As
with a return for a business taxpayer, you should only ask to see private bank
statements at this stage if you can demonstrate their relevance to the return
and that you reasonably require them for the purpose of checking its accuracy.”
(EM1570).
112. Mr Gordon
submitted, in light of those extracts from the manuals, that requesting the
statements sought from the outset was “completely opposed” to the HMRC manuals.
Conclusion as to paragraph 1(1) of Schedule 36
113. Our reasons
for concluding that paragraph 1(1) was satisfied are as follows.
Utility bill payments for the Walsall property
114. We accept
that one of the “lifestyle indicators” that Mr Birkett mentioned might be shown
on the statements sought. That is, the utility bill payments for the Walsall property. We accept Mr Gordon’s submission that the inclusion of such payments on
the statements sought would not necessarily take HMRC’s investigations
further. Our reasons for this finding are as follows; they are not quite the
same as the reasons suggested by Mr Gordon.
115. We accept Mr
Gordon’s submission that the statements sought will show utility bill payments
for the Walsall property for the period when the appellant said it was empty
(22 March 2008 until when it was rented out in June). However, if the property
was indeed occupied at any time in that period, contrary to what the appellant
told HMRC, then we find that the payments on the statements sought may well be
higher than if no-one had stayed in the property in that period. So if the
utility payments were indeed higher for that period than if the property were
empty, that would be a clue, in our judgment, that the appellant, or someone at
least, had stayed in the property during that period. To that extent,
therefore, we do not accept Mr Gordon’s submission that utility payments shown
on the statements sought would be explained away by the appellant’s ownership
of an empty property.
116. However, we
find that the statements sought would be unlikely of themselves to show that
the utility bill payments were higher than they would have been had the
property been empty. For that, a comparison would need to be made between
utility usage at the property when it was occupied and utility usage at the
property throughout the period from 22 March 2008 when the property was said to
be unoccupied. The statements sought are unlikely to suffice for such a
comparison. The utility bills would be needed for that, in our judgment.
117. We said
above that our reasons in relation to utility bills are not quite the same as
those suggested by Mr Gordon. That is because we do not agree with Mr Gordon
(paragraph 106 above) that the utility payments on the statements sought would
necessarily be explained by the appellant’s ownership of an empty property.
Nevertheless, for the reasons at paragraphs 114 to 116 above, we judge that the
statements sought would not of themselves indicate that the appellant had
stayed at the property at a time when he professed not to have stayed there.
118. The fact
that the statements sought would show utility bill payments for the Walsall property does not therefore, in our judgment, render the statements sought
reasonably required for the purpose of checking the appellant’s tax position.
Other expenditure that might be shown on the
statements sought
119. However,
other expenditure might be shown on the statements that would, contrary to Mr
Gordon’s submission, take HMRC’s investigations further in our judgment. That
possibility does in our judgment render the statements sought reasonably
required for the purpose of checking the appellant’s tax position.
120. In
particular, we find that there might be expenditure, including utility bill
payments, for a property other than the Walsall property. We find that there might,
as Mr Birkett submitted, be supermarket expenditure. We find that there might
be expenditure indicating social activity beyond that to be expected of a
non-resident. We say this because, although Mr Gordon said that social
activity had been “highlighted as negligible”, we do not find that that was
what HMRC accepted; it was merely what was submitted for the appellant.
Examples of other expenditure that might be shown on the statements sought are
membership or other subscriptions, or payments relating to socialising or
hobbies. These are, though, merely examples of the kind of social expenditure
that might be shown on the statements sought. There might also, we find, be
payments suggesting employment in the UK. Evidence of any of this other expenditure
may, in our judgment, show something about the appellant’s movements and
activities, and ties with the UK, that contradicts his case on residence.
121. We find that
HMRC’s position left open the possibility that evidence of such other
expenditure might further their investigations. We so find because, although
Mr Birkett fairly and commendably accepted a number of points, he crucially did
not accept two in particular—
(1)
Mr Birkett did not accept that the appellant had not stayed in the Walsall property during the visit of 3 to 6 April 2008. It was open to Mr Birkett in our
judgment to take that position despite his acceptance that the possessions in
that property were packed up. He had maintained that the Walsall property was
available to the appellant during that visit, and indeed for the whole of the
period from 22 March 2008 until the time it was rented out in June 2008. It
was not suggested that the possessions could not be unpacked, or partially
unpacked, to support a three-day stay at the property; we find that they could
be unpacked, or partially unpacked, to support such a stay. We find that,
alternatively, the possessions may not need to be unpacked for such a short
stay;
(2)
The second point that Mr Birkett did not accept was that the appellant
was not employed in the UK in the tax year in question. Mr Birkett did not say
whether or not he accepted that the appellant was not employed in the UK. However, his assertion that the appellant had continuing business in the UK, a financial reliance on that business, and made repeated visits to the UK which were described as “business in the UK” was a strong indication that he did not accept that
the appellant was not employed in the UK.
122. That is not
to say that Mr Birkett disputed those two points; he accepted that, without
further information, he was not in a position to dispute them (which acceptance
contributed to his inability to show that condition B was met). But the fact
that he did not accept those points meant that he had not bound HMRC to a position
on those points regardless of what evidence might come to light. That in turn
left open in our judgment the possibility that the statements sought would give
evidence that would further HMRC’s investigations as to residence.
123. Equally
however, we agree that the statements sought might actually confirm the
appellant’s case as to residence. That possibility does not prevent the
statements sought from being reasonably required for the purpose of checking
the appellant’s tax position. The purpose of “checking” the appellant’s tax
position is not to contradict his case as to residence, but merely to check it,
as Mr Birkett rightly and fairly pointed out. That check might, as Mr Birkett
said, result in confirmation or contradiction of the appellant’s case.
124. We do not
therefore accept Mr Gordon’s submission that HMRC’s failure to point to any
reason to doubt the information provided meant that paragraph 1(1) was not
satisfied. That failure did mean that condition B was not met. But paragraph
1(1) does not need HMRC to show that there is any reason to doubt the
information provided. It suffices if the statements sought are reasonably
required for the purpose of checking the appellant’s tax position, if only to
verify the information provided, as Mr Birkett rightly submitted.
125. Nor do we
find that the extract on which Mr Gordon relied from the HMRC Charter assists
the appellant on paragraph 1(1). Mr Gordon relied on that extract not to argue
that the appellant had a legitimate expectation (which would be unlikely to
succeed in this forum) but to argue that the extract effectively added a gloss
to the phrase “reasonably required” (paragraph 108 above). We disagree.
Whether the statements sought are reasonably required for the purpose of
checking the appellant’s tax position is an objective test and was, for the
reasons set out above, satisfied.
126. The HMRC
manuals which Mr Gordon cited do not in our judgment assist the appellant
either.
127. As it
happens, one of the passages which Mr Gordon cited from the manuals could
equally well have been cited in support of HMRC’s case—
“As
with a return for a business taxpayer, you should only ask to see private bank
statements at this stage if you can demonstrate their relevance to the return
and that you reasonably require them for the purpose of checking its
accuracy.”.
This extract could have been viewed as helpful to HMRC’s
position, if the manuals were relevant at all, given HMRC’s position that the
statements sought were reasonably required for the purpose of checking
the accuracy of the return.
128. But the
manuals do not assist the appellant in any event. Mr Gordon did not suggest
that the appellant had formed a legitimate expectation in reliance on the
manuals (and if Mr Gordon had made such a suggestion, we would have needed
persuading that such an argument could be advanced in this forum). What
ultimately governs the case is whether the statements sought are reasonably
required for the purpose of checking the appellant’s tax position. The manuals
do not alter the fact that that is an objective test. And we find that that
test was satisfied.
129. For these
reasons, the tribunal’s conclusion is that the statements sought, or at least
those statements so far as they showed expenditure in the tax year in question,
were reasonably required by HMRC for the purpose of checking the appellant’s
tax position.
130. Paragraph
1(1) of Schedule 36 was therefore satisfied. But that does not alter
the outcome of this appeal.
131. The appeal
is allowed. The notice is set aside under paragraph 32(3)(c) of Schedule 36.
132. In
commenting on the draft of this decision, the appellant’s agents said—
“It
is Counsel’s recollection that the question of paragraph 1(1) was not fully
argued at the Hearing on 12 September 2012”.
We were not aware that that was counsel’s view. It is
understandable if counsel considers that he did not make submissions regarding
paragraph 1(1) as forcefully as he might have done, given his oral submission
that HMRC’s position effectively “killed the case”. But counsel did in fact
make oral submissions reflecting the points at paragraphs 34 and 36 of his
skeleton, to the effect that HMRC have no reason to suspect that the
information given by the appellant was not true. Counsel also made oral
submissions regarding the HMRC Charter and about HMRC guidance. We have
considered fully those points, as well as counsel’s other points regarding
paragraph 1(1), as set out above.
Costs
133. The
appellant applied for costs. We will consider costs once the parties have had
the opportunity to make further submissions on costs in light of this full
decision.
134. We direct
that the parties may make further submissions on costs within 21 days of the
day on which this decision is released. If either party needs longer, that
party should, before the expiry of the 21 days, ask the tribunal for extra
time.
135. Paragraphs 1 to
131 above contain full findings of fact and reasons for the decision contained
in them. Pursuant to paragraph 32(5) of Schedule 36, that decision is final.
RACHEL PEREZ
TRIBUNAL JUDGE
RELEASE DATE: 30 July 2013
