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Cite as: [2005] UKSPC SPC00499, [2005] UKSPC SPC499

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Doyle v Revenue and Customs [2005] UKSPC SPC00499 (30 August 2004)

SPC00499

Income Tax; self assessment; enquiries into taxpayer's return; application by taxpayer for "closure" notice; circumstances taken into account; whether taxpayer's human rights infringed- no; whether; whether reasonable grounds for not giving the notice-yes; Taxes Management Act 1970, as amended, section 28A.

THE SPECIAL COMMISSIONERS

GORDON DOYLE Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Special Commissioner: J GORDON REID QC

Sitting in Edinburgh on 24 June 2005

D Hay for the Appellant

J Hughes for the Respondents

© CROWN COPYRIGHT 2005

DECISION

Introduction

This is an application under section 28A(4) [formerly 28A(6)] of the Taxes Management Act 1970, as amended, for a direction that a closure notice be given under section 28A(1) [formerly 28A(5)] that the relevant officer of the Respondents (the "Revenue") has completed his enquiries into the return for the Tax Year 2000/2001 [document R/(tab)D], on the basis of which the taxpayer's self-assessment was made, and stating his conclusions as to the amount of tax which should be contained in the taxpayer's self assessment.

The taxpayer, Mr Gordon M Doyle, who was not present at the Hearing which took place at Edinburgh on 24^th June 2005, was represented by Mr D Hay of Denholm Hay Associates, also known as ScotAccounts.com, South Queensferry, Edinburgh. He led no evidence. There was discussion and correspondence at an earlier stage about the attendance of certain witnesses who had been the subject of witness summonses. Ultimately, however, the taxpayer did not insist in their attendance.

John Hughes, Inspector of Taxes, Appeals Unit, Glasgow, appeared on behalf of the Revenue and led the evidence of Andrew Paterson, also an Inspector of Taxes. He is the officer currently making enquiries into the taxpayer's return. Both parties produced a variety of documents. There was no dispute as to their authenticity, transmission and receipt.

Facts

On or about 31/1/02, the taxpayer signed and submitted a Return for the year ended 5/4/01. It describes his business as computer repair, upgrade and accessories. It shows total turnover of £32,142.03 and a variety of expenses amounting in total to £13,411.90.

These figures appear to be based on document R/(tab)C which is a rudimentary cash account for 2000-2001 prepared by the taxpayer himself and submitted to the Revenue on or about 17/9/02 [R/A/7] by his then representatives, Abbey Tax Protection Ltd, Rugby (engaged through the taxpayer's membership of the Federation of Small Businesses). It purports to show a total turnover of £32,142. 03. It appears to be based upon a reconstruction of expenditure and receipts as identified from various sources. There is apparently no discrete record of business takings or business expenditure.

On 14/8/02 an enquiry into the taxpayer's 2000/2001 Return was opened by the Revenue [document IR/87]. Lengthy correspondence ensued. Various requests for information were made in 2002, 2003, 2004 and 2005. By about 9/9/03 Messrs Denholm Hay Associates were acting on behalf of the taxpayer. Correspondence dated 7/10/03 [R/A/81], 5/11/03 [R/A/83], 4/2/04 [R/A92-93], 16/3/04 [R/A/94-96], 19/3/04 [R/A/97-98], 26/8/04 [R/A/106-108], 21/9/04 [R/A/109-110], 8/11/04 [T/11], 23/11/04 [R/A/116-117] 26/1/05 [R/A/134-135], 16/5/05 [IR/2] and notes of the meeting dated 5/12/03 [R/A/87-88] set the tone.

On or about 26/2/03, the taxpayer completed, signed and subsequently submitted to the Revenue Statements of Personal Assets and Liabilities and Business Interest as at 5/4/00, 30/9/02, and 1/2/03.[documents R/B]. For present purposes, it is sufficient to note that there is no mention in any of them of ownership of any heritable property or real estate situtated in the USA. In subsequent correspondence with the Revenue, the taxpayer acknowledged that he had purchased a property in the USA in July 2001 [letter from the taxpayer dated 14/4/05 R/F/1].

On 16/7/03, the taxpayer attended a meeting (accompanied by his representative David Marples of Abbey Tax) with Mrs L Goode, a Inland Revenue tax inspector and Ms S Roy, an Inland Revenue Official. The notes of the meeting [R/A/42-46], prepared by Mrs Goode, disclose that the taxpayer has had a stall at the Barrows, Glasgow since 1998. He carries on business there chipping Sony Playstations and DVD Players. The purpose of chipping is to adapt these machines so that they play counterfeit Playstation Games and DVDs. He also chips Television black boxes which enables a subscriber to a minimal package to receive all additional channels free. I need not dwell upon the legality or illegality of these activities and whether they amount to participation in a criminal enterprise to bypass legitimate copyright controls and elide copy protection systems. These are matters for others to consider and act upon if appropriate to do so.

At that meeting, the taxpayer stated that he had bought a flat at Links View, Bo'ness in 1998. He was unable to explain the source of the funds used to purchase the property. He denied having inherited any money. He also denied having a property in Florida. He was asked to reconsider this answer. The meeting was adjourned for ten minutes while the taxpayer discussed matters with his adviser, Mr Marples. On resuming, Mr Marples, on Doyle's behalf and in his presence, stated that a sort of hotel condominium at Daytona Beach, Florida had been purchased for £25,000 in July 2001.

The reason for seeking information about the purchase of the Daytona Beach property was that it was thought that the source of the funds would or might have arisen during the year of enquiry 6/4/00 to 5/4/01 and therefore would or might have a bearing on the taxpayer's liability for that year.

A further meeting took place at the Revenue's offices at Elgin House, Edinburgh [see notes of meeting R/A/53-54]. The notes of the meeting disclose that it concerned the taxpayer's previous employment by the MOD against whom he said he was litigating, and that he alleged that he was bound by the Official Secrets Act, had access to large sums of money but was not able to disclose the source. His financial affairs were not discussed in detail.

The taxpayer was again requested to supply various particulars and documents on an informal basis in January 2005 [letters 21/1/05-R/E/30; 26/1/05-R/A/134] but he did not do so or did not adequately do so, so far as the Revenue were concerned.

Following a meeting before a General Commissioner on 16^th and 17^thMarch 2005 [R/E/1], at which Mr Paterson sought and was granted consent, three statutory notices (under section 20(1) of the 1970 Act) were served [R/E/1-16]. The first, dated 17/3/02 required the taxpayer to furnish the Inspector with documents and particulars relating to (i) the actual date the taxpayer's income from his business commenced; (ii) the purchase of the Daytona beach property, (iii) the purchase of the Links View property in Bo'ness, (subsequently referred to by the taxpayer as 17A Links Road – see letter 14/4/05 [R/F/1]) showing how it was funded including the solicitor's cash account; (iv) details of various bank and other accounts, and (v) full business records for the year to 5/4/01, and (vi) all USA bank and similar accounts held by the taxpayer, [R/E/3]. The other notices sought records of all bank building society and credit card accounts in which Mrs Doyle had an interest between 6/4/99 and 5/4/01 [R/E/7]; and similar records in which the taxpayer's son had an interest for the year 6/4/00 to 5/4/01 [R/E/11].

By letter dated 14/4/05 [R/F/1], the taxpayer informed the Revenue inter alia that the Daytona Beach property was paid for in cash ($37,633.86); the source of the cash was a combination of savings and inheritance for which no documentation exists. He narrated other information in general terms about the purchase of 17A Links Road and various bank accounts. By letter in response dated 27/4/05 [R/F/4], the Revenue requested inter alia further details about the inheritance. By May 2005, the Revenue were still seeking information in the form of documents in relation to the purchase of 17A Links Road Bo'ness, the inheritance used to pay for all or part of the Daytona Beach property, and the amount and source of cash held by the taxpayer as at 31/7/01 [R/F/11]. Further correspondence ensued in June 2005 [R/F/12-17] but no further information was provided. By letter dated 16/6/05 to the taxpayer [R/F/16] the Revenue sought inter alia full particulars in relation to the inheritance [R/F/17]. In evidence, Mr Paterson, who is a highly experienced tax inspector of some 25 years, stressed the difference between requesting documentary material on the one hand and particulars on the other hand.

Submissions

Mr Hay, for the taxpayer, produced a list of what he described as documented events. This was essentially a list of what he regarded as the key correspondence and meetings. He submitted that closure could be justified by reference to the Revenue's conduct as well as their powers. He argued that under the Self Assessment Rules (he was unable to identify the Rules and the particular rule he had in mind) a taxpayer was required to answer questions only about the year of assessment. This was a recurring theme of his presentation both in cross examination and submission. He pointed to correspondence to demonstrate the Revenue's enquiries were much more wide ranging and covered several other years of assessment (eg R/A/28 &31, IR/61-62). He argued that an inspector who had been involved in the investigation at an earlier stage had displayed an unbalanced view towards the taxpayer. He illustrated this by reference to a number of documents (IR/83-86 paras 5, 10, 11 & 18 and IR 69).

He also presented a Human Rights argument. After some discussion about whether proper notice of this line had been given, Mr Hughes intimated that he was in a position to deal with such an argument.

Mr Hay's argument, which he produced partly in writing was mainly based upon Article 1 of the First Protocol. In particular, he relied upon the principle of proportionality. His theme was that the Revenue had gone to excessive lengths over a prolonged period to investigate the affairs of an individual and his family whose only business was the operation of a market stall. He also relied on Article 8 of the Convention arguing in summary that the taxpayer was being pursued at very large expense to the general public, much greater than the possible tax involved. Interference with the taxpayer's Article 8 rights could therefore not be justified by the economic well-being of the country. He produced a calculation (which was not based on any evidence) to show that the expense of investigating the taxpayer's affairs far exceeded any tax that might ultimately be due. He argued under reference to Scott v McDonald 1996 Special Commissioners Decisions 381 that the Revenue had been and were being heavy handed; their tactics were obstructive and they had shown no bona fide belief (in what, was not clear). The Revenue wrote direct to the taxpayer on occasions when they should have been writing to his representative.

Mr Hay went on to draw an analogy with the famous investigation into Lester Piggott's tax affairs.

He concluded by submitting that section 20 of TMA could not be used as a fishing exercise. The taxpayer had never been un-cooperative; he had attended two meetings with the Revenue and provided such records as he was able to produce. The enquiry should therefore be closed now or in the very near future.

Mr Hughes submitted that Mr Hay's submissions were largely irrelevant. He had misunderstood the concept of proportionality. The nature and extent of the investigation was entirely attributable to the taxpayer's apparent failure to keep proper records and his response to reasonable enquiries, particularly in relation to his purchase of the Daytona property, the alleged inheritance and the source of savings. The taxpayer cannot use his own lack of co-operation to justify an argument based on proportionality. Given the date of acquisition of this property the source of funds might well have arisen during the year of enquiry. Investigations need not be restricted to the year of enquiry. The Revenue's position was that the Inspector in charge did not yet have sufficient information to enable him to come to a reasonable conclusion. In the circumstances the Revenue was justifiably suspicious. The taxpayer has been asked to provide particulars of various matters as well as documents. He has not yet done so. He has not said that he has no memory of these matters.

Decision.

Parties have produced a considerable bundle of correspondence and documentation. In my view, it would be pointless to analyse it blow by blow. Having read all the documents put before me, the flavour of the correspondence is plain. The Revenue are dealing with a trader who has kept, or at least has produced, virtually no business records. His income and expenditure have been reconstructed in a manner which raises as many questions as it answers. The opening of the enquiry was entirely reasonable in the circumstances. Since the enquiry has been opened the taxpayer has provided minimal information in a vague and unsatisfactory form, usually with such lack of specification as to make the Revenue justifiably suspicious and request further information. This process has been continuing since the enquiry opened. One illustration of the flavour of this case is sufficient.

At the meeting on 16/7/03, according to the notes of that meeting prepared by the then investigating inspector, the taxpayer was asked whether any money had been inherited and Doyle said no (paragraph 18); at a later stage in the interview (according to the notes) the taxpayer also denied having any property in Florida but subsequently changed his mind.

Eventually, following proceedings before the General Commissioner the taxpayer wrote to the Revenue [R/F/1 14/4/05] stating inter alia that The source (of the purchase price of the Daytona property which was paid in cash) was combination of savings and inheritance (despite the earlier denial about inheritance). No documentation exists. The letter proceeds to state that the Majority of funds were wire transferred to the realtor handling the sale. No documentation exists. Whether these statements are believed, they raise a number of questions which the Revenue are entitled to pursue e.g. the source of the inherited and saved funds and similar particulars. The Revenue currently await a response to questions which that letter raises. In my view, these form part of their legitimate enquiries into the taxpayer's return for the tax year 2000/2001. It is plain that the source of funds for a property purchased in July 2001 might well have a bearing on the proper assessment of the taxpayer's tax liability.

The general attitude of Mr Hay in correspondence did not help. He persistently declined to respond to questions about the Daytona property on the ground that this was outside the year of enquiry (eg R/A/109 fax letter dated 21/9/04); he also made vague references to case law, sometimes identifying a case but giving no case reference or explaining what proposition of law he contended it supported).

The Revenue were and are justifiably concerned at the lack of business records, the failure to disclose ownership of property in the USA, the lack of documentation in relation to the taxpayer's financial circumstances generally and in particular in relation to the tax year 2000/2001, the taxpayer's general lack of co-operation over what should be relatively straightforward matters, and the vagueness of the information provided.

The underlying suspicion must be that the taxpayer's income is very substantially greater than it appears to be, that he hopes the Revenue will run out of patience and issue an assessment based on current information which he will then pay, in the knowledge that the assessment understates his true tax liability to a significant extent. In their current state of knowledge, the Revenue, and in particular a very experienced inspector (Mr Paterson), are not satisfied that they have a complete or satisfactory picture of the taxpayer's financial circumstances in relation to the year in question. They therefore do not wish to close their enquiries at this stage.

I should indicate that I found Mr Paterson to be a reliable and credible witness. He gave his evidence clearly, in a fair and balanced manner. This reflected the patient, fair but persistent approach of the various inspectors involved in the enquiries.

In my view, the position taken by the Revenue is amply justified by the facts and circumstances which I have set forth above. The underlying reason for all the foregoing procedures and enquiries is to determine the correct tax liability of the taxpayer. It is plain that the reason for keeping the enquiry open is to investigate further and clarify the vague and exiguous responses made by or on behalf of the taxpayer to date. In my view, the Revenue are entitled to take the stance that they do not yet have enough information to come to a reasonable conclusion as to the proper assessment of the taxpayer's liability for the year in question. Mr Paterson's enquiries are not yet complete. He is amply justified in taking the view that they are not yet completed.

As for the Human Rights arguments, it seems to me that their foundation is misconceived. A taxpayer cannot, in my view, deploy his own lack of co-operation and inability to keep adequate business records (where most citizens have no difficulty in keeping adequate records and providing, in response to reasonable lawful enquiries, sensible and reasonable explanations of their financial circumstances) which causes the Revenue to expend substantially more time and resources on the investigation of his financial circumstances than they would otherwise normally do, to argue that their conduct has somehow been disproportionate and thus an infringement of his Human Rights. If the taxpayer's Human Rights argument were sound, then any taxpayer could, by procrastination and the "drip-feeding" of vague and ambiguous information to the Revenue, frustrate reasonable legitimate enquiries by the Revenue and force the closure of such enquiries, which then might ultimately lead to an unduly low assessment, or to a high assessment which could be successfully challenged because it was not reasonably based upon the information in the possession of the Revenue at the time it was made. That can hardly be in the public interest.

Moreover, the economic well being of the country plainly requires that the Revenue should not be disabled from pursuing their legitimate enquiries where, despite lengthy correspondence, they reasonably consider that they do not yet have enough information to draw a reasonable conclusion as to the amount of tax which should be contained in the taxpayer's self-assessment.

There is a growing body of jurisprudence relating to Human Rights and direct and indirect taxation. I was not addressed in detail on how it might apply to the proceedings before me. I therefore do not propose to say anything further on this branch of the taxpayer's argument.

Finally, I am of the opinion that the case of Scott, cited by Mr Hay, is not in point. There, the taxpayer appealed against nine assessments. There was a finding of bad faith on the part of the inspector (at page 385j); The Special Commissioner held that the taxpayers' accounts were accurate (387h); the correspondence in that case showed that the approach of the Revenue had been heavy handed throughout (386g). In the present proceedings, I consider that the Revenue have been acting in good faith throughout. I would describe their overall approach as patient and even handed. While Scott is not in point, the contrasting facts highlight how reasonable and patient the Revenue have been in the present case.

Result

In the foregoing circumstances, I am, at present, satisfied that there are reasonable grounds for not issuing a closure notice either at this stage or within any specified period. The application is therefore refused.

Unless an application for expenses is made within 28 days of the release of this Decision, no expenses will be found due to or by either party in relation to these proceedings.

J GORDON REID QC

SPECIAL COMMISSIONER

Release Date: 30 August 2005

SC 3009/05