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United Kingdom Special Commissioners of Income Tax Decisions
You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> Jacques v Revenue & Customs [2007] UKSPC SPC00577 (11 January 2007)
URL: http://www.bailii.org/uk/cases/UKSPC/2007/SPC00577.html
Cite as: [2007] UKSPC SPC577, [2007] UKSPC SPC00577
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- This decision concerns two appeals by Bryan William Jacques ("the Appellant"), cases SC/3101/2005 and SC/3055/2006, directed to proceed and to be heard together.
- SC3101/05 concerns the Appellant's application for the issue a closure notice under section 28A TMA.
- SC3055/06 concerns the Appellant's appeal against the Penalty Notice dated 23 January 2006.
- I have used the following abbreviations in this Decision:
- The structure of this decision is as follows:
- There are essentially two issues in this case:
- I remind myself that the evidential burden in each of these cases is different.
- The Law in so far as is relevant is found in sections 19A,28A, 97AA,100, 100B and 114 TMA, these provide as follows.
- Section 19A TMA is headed "Power to call for documents for purposes of certain enquiries". It provides:
- Section 28A TMA is headed "Completion of enquiry into personal or trustee return". It provides:
- Section 97AA is headed "Failure to produce documents under section 19A". It provides:
- Section 100 TMA is headed "Determination of penalties by officer of Board". It provides:
- Section 100B TMA is headed "Appeals against penalty determinations". It provides:
- Section 114 TMA is headed "Want of form or errors not to invalidate assessments, etc"
- I was provided with copies of the following authorities which I read and considered:
- I have also read and carefully considered Engel v The Netherlands (No 1) (1976) 1 EHRR 647 and Ferrazini v Italy [2003] STC 1314.
- An agreed bundle of documents in two volumes was produced. None of the documents in the bundle was objected to and they were all admitted in evidence.
- Oral evidence was given by:
- It is clear that Mr Scott's relationship with HMRC had broken down. The real reasons for this did not emerge from the evidence. He seemed to believe that:
- I found Mr Cove to be a careful, thoughtful and credible witness whose evidence I prefer the most and I wholly accept. Mr Longstaff was a somewhat nervous but credible witness whose evidence I accept. Ms Kennerley was a direct, careful and competent witness whom I found to be thoughtful and to take a common sense approach. I also accept her evidence.
- I prefer the evidence of the witnesses from HMRC in general to that of Mr Scott. Where there is a conflict of evidence between Mr Scott and Mr Cove's evidence I prefer Mr Cove's evidence. Generally, I prefer Mr Longstaff's evidence to that of Mr Scott. This reflects my general view of the witnesses set out above and careful thought about the evidence in general and the various specific points in particular having had the benefit of seeing and hearing the witnesses and their reactions when in and not in the witness box.
- A Statement of Facts not in Dispute and Matters which remain in issue had been directed to be produced and was duly served. I have treated the agreed matters as common ground for the purposes of this decision and findings of fact.
- From the oral and written evidence and the Statement of Facts I make the following findings of fact.
- I make the following observations by way of overview which I find as primary facts.
- I remain unclear as to the rationale for the Appellant not providing the documents originally seen by HMRC as the General Commissioners had directed. I was not given any reason as to why the Appellant could not have copied the documents in question and provided the copies to HMRC other than he thought he did not have to. The production of such copies would have complied with the General Commissioners' direction and have provided a check as to what was done with the copies as the Appellant would still have the originals. Mr Scott said his objective was to bring the enquiry to an end as quickly as possible for the benefit of Mr Jacques. The result of failing to provide the documents has resulted in the enquiry continuing, various hearings and seemingly unnecessary expense and penalties for Mr Jacques.
- The salient events and the dates on which they took place or periods to which they relate are as follows:
- I specifically find as primary facts:
- There was much correspondence in connection with the matters under consideration. Much of what Mr Scott wrote was intemperate and contained serious allegations against the HMRC officers. Much of this was contained in the Bundle. I have carefully considered the correspondence in making my findings of fact. I have seen no evidence to support the allegations contained in the correspondence.
- Various meetings in connection with the matters under consideration have taken place during the course of this sorry saga. Notes of meetings were included in the Bundle. I have carefully considered these in making my findings of fact.
- Many telephone conversations have also taken place. Many of those involving Mr Scott have been recorded here in whole or in part. Such recording had not been with the knowledge of the other party or parties. As Mr Cove said in his evidence some of these calls were difficult. I have borne this in mind when reaching my findings of fact and conclusions. No objection was made to the admission of the transcripts of the recordings but there was no general corroboration of them.
- Dr Avery Jones, the Special Commissioner who made the Decision at the Preliminary hearing on 8 December 2005 in his careful decision released 13 December 2005 recorded at paragraph 16 that:
- Mr Scott asserted that this had not been said. No challenge has been made to Dr Avery Jones' decision nor in particular to that paragraph. No evidence whatsoever was lead to support this very serious allegation.
- I absolutely reject Mr Scott's assertion as unfounded, unsubstantiated, unsupported by evidence and as typical of his approach to the whole of this matter.
- Whether or not there was a telephone call on 1 February between Mr Cove and Mr Jacques was very much a live issue at the hearing. I find as a fact that there was such a call. I accept Mr Cove's evidence on this aspect in its entirety.
- The Appellant claimed that offers sufficient to fulfil the requirements of the General Commissioners direction were made in:
- I find as a fact that there were no genuine or real offers made to provide all the documents which were not subject to a restriction as to the personnel who could view or touch the documents and/or the time for which they were to be available which was not to exceed one day or two half days as dictated by Mr Scott. His overarching requirement to be told why the documents were needed and what was to be done with them corroborates this. The fact is that the documents have still not been provided or produced. There has been no production or provision.
- Mr Scott said in his Witness Statement:
- I find as a primary fact this was not a genuine offer to comply with the direction.
- Mr Scott said in his Witness Statement:
- I find that this was at best an offer to comply with the direction as regards part only of the documents. I find as a fact that this was not a genuine offer to comply with the direction as required.
- Throughout the correspondence there are very serious allegations made by Mr Scott as to the behaviour of HMRC Officials. These were not withdrawn. No evidence was led to substantiate any of these allegations. The investigations carried out by HMRC concluded that these allegations were unfounded. I find as a fact that the behaviour of the HMRC officials in regard to this matter was above reproach and the allegations were unfounded. Such allegations have not helped the Appellant's case.
- It was said the Appellant became concerned at HMRC's approach following 'the breach of confidence'. This breach of confidence apparently concerned Mr Longstaff's contact with Mr Ingram. I find as a primary fact that there was no breach of confidence.
- Mr Scott repeatedly asserted that there had been a breach of confidence in Mr Longstaff contacting Mr Ingram. The only clear undisputed direct evidence of contact was in the note of telephone conversation of 7 and letter of 15 July 2004.
- Mr Longstaff's evidence which I accept was that he discussed contacting Mr Ingram with his line manager. As a result the questions Mr Longstaff asked were those written down and agreed with the line manager. The piece of paper on which they were written was not produced. However, I find that this is what was done.
- Mr Longstaff's note read:
- Mr Ingram's letter of 15 July 2004 read:
- A printout of Mr Jacques 2002/03 sales ledger. Please note that the full details are in the books you have. On the ledger we just entered the quarterly takings figures.
- Mr Jacques did a stock take at end of year. The closing stock figure showed on the Accounts is the figure he gave me after doing the stock-take.
- Mr Scott had recorded a telephone conversation between himself and Mr Ingram. This did not show any breach of confidence.
- I find as a fact that the only contact between Mr Longstaff and Mr Ingram was in July 2004. It consisted of the telephone call and the letter described above. I also find that there was no breach of confidence. This is because the contact related to the year for which Mr Ingram had produced the return and the entries in it. Even if other matters had been discussed (which I find they were not) without more there would be no breach. HMRC cannot be prevented from collecting information from third parties and making reasonable enquiries. Mr Scott could not restrict this any more than he could impose conditions on compliance with the General Commissioners' Direction.
- I find as a fact that there was no evidence that:
- I do not consider that HMRC did any of the things set out in subparagraphs (1)– (4) of paragraph 49. The assertions that they did were unsubstantiated. There was absolutely no evidence to support these assertions. Accordingly, as a matter of fact there was no basis for Mr Scott's beliefs concerning HMRC. I find as a fact that HMRC did not do any of the things set out in subparagraphs (1)–(4) of paragraph 49.
- In essence, the Appellant submitted that:
- In essence, HMRC submitted:
- In summary, the documents have not been provided, the issue of the penalty and its amount was reasonable and the Human Rights Act does not change the facts of non production and the reasonableness of HMRC's actions.
- The arguments of the parties raise a number of questions including the following:
- It was common ground that the production or provision ("the Provision") of the documents specified in a section 19A Notice needs to be a real or, to use the phrase I introduced at the hearing, a meaningful Provision. It was common ground that provision for a minute would not satisfy the Direction which required the specified documents to be provided. It was common ground that the documents had not been physically provided by the Appellant to HMRC. I specifically asked whether these maters were common ground and both Counsel told me they were. I made a careful note of it.
- I raised with both Counsel the question as to what was wrong with the following formulation as an answer to the question "What does produce or provide mean?"
- Counsel for HMRC was content to adopt this as a working formulation. Counsel for the Appellant was worried by the word "use" which he felt might imply possession. He was concerned about the word "unrestricted" but accepted that the Provision had to be meaningful.
- In my view produce or provide in the context of the General Commissioners' Decision in this case means allowing sufficient unrestricted use of all the documents in question to HMRC for HMRC to do such work, tests and other things (such as photocopying) in relation to those documents as is reasonable for HMRC to do in order to progress that stage of the inquiry. It includes allowing HMRC sufficient time to do what is necessary.
- That formulation would:
- Accordingly, I adopt the formulation set out above as a sufficient working formulation for the purposes of this case. I now turn to consider whether it has been fulfilled.
- It is common ground that the General Commissioners directed that all the specified documents be produced. It is common ground that all the specified documents have not been physically handed over to HMRC with or without parting with possession. The direction in consequence has not been complied with.
- I have found that the documents were not offered to be available to HMRC in compliance with Section 19A TMA in any meaningful sense. They were not and have not been provided or produced to HMRC.
- Using the working formulation set out above there has clearly been no production or provision as there have been no meaningful or real offers of production or provision. If that formulation is not the correct approach then I find that the documents have not actually been provided and so the General Commissioners' Direction has not been complied with. Offers to make Production subject to conditions do not comply with an unconditional direction to provide the documents within fourteen days. When considerably more than a year has elapsed since the expiry of the date for Production there is no margin of appreciation in favour of the Appellant.
- The Appellant has not allowed sufficient unrestricted use of all the documents in question to HMRC for HMRC to do such work, tests and other things such as photocopying in relation to those documents as is reasonable for HMRC to do in order to progress that stage of the inquiry. I find this as a matter of fact.
- I find that without the production or provision of all the documents specified in the General Commissioners' Direction HMRC cannot properly conclude their enquiry. The discrepancy between the amount of the profit originally declared and that subsequently declared alone requires the business records to be considered by HMRC before closing the inquiry. It cannot be said that it would be proper for them not to enquire into the difference. I consider that it is entirely reasonable for them to do so and without the provision of the documents the General Commissioners had directed be provided they cannot reasonably do so. I conclude and find HMRC have shown there are reasonable grounds for not issuing a closure notice within a specified period. It seems the General Commissioners took the view that in the circumstances it would not be reasonable to issue a closure notice. If that is the case I agree with them. I find it would not be reasonable to issue a closure notice in the circumstances before me.
- It was argued on behalf of the Appellant that:
- Mr Faccenna, for HMRC argued strongly to the contrary. I have adopted much of what he said and so have not set it out in greater detail.
- I also record here for convenience that I have found that there was no evidence of any intention to prosecute. Indeed such evidence as there was pointed the other way. It was suggested that threats were made of penalties under section 95. I was not shown any evidence of actual threats. I find that no threats of section 95 penalties were made. I find this as a fact.
- The penalty in Sharkey was under section 97AA TMA as here. Etherton J made the following comments which I respectfully adopt.
- He said:
- The penalty here was under section 97AA. There were no threats of section 95 penalties. Warnings that they were possible were quite proper warnings of that possibility. In the circumstances of this case they were not such as to engage criminal proceedings. I consider the normal HMRC approach of warning of the possibility of section 95 TMA applying to be proper and a correct exercise of their duty.
- The section 97AA penalty is not criminal for the reasons set out above (see Sharkey). There was no evidence of any intention to prosecute or impose section 95 TMA tax geared penalties. There was nothing akin to securing a conviction to obtain the documents as there was in Funke v France (particularly paragraph 44). Article 6 applies inter alia to a person charged with a criminal offence. Mr Jacques is not in such a position. There were no proceedings threatened or pending at the relevant times. I find this as a fact.
- I adopt from Funke the:
- Accordingly, I find Article 6 is not engaged.
- As Article 6 is not engaged then this argument cannot be stood up.
- As noted above there was no person charged with a criminal offence at the relevant times in this case I find that there is no self incrimination defence here. Article 6 had not been engaged (see above).
- The references to section 95 by HMRC were not threats as I have already found. The warnings of its possible application were a proper exercise of HMRC's duty to inform taxpayers in the circumstances of this case. HMRC should seek to stay within the approach of Matscher J quoted above so as to balance their duty to inform with the duty to ensure a fair trial. I find that HMRC did so here. This is a difficult area of law but it cannot be intended that taxpayers cannot be informed of the position and kept in the dark if there is to be a fair trial of those who evade tax. This cannot be the intended policy or the correct purposive construction. I find that what HMRC did here in difficult circumstances was within what was proper and did not breach any of Mr Jacques Human Rights.
- As the right of silence etc is not engaged it cannot require the closure notice. I find that none of the other Human Rights Act provisions require the closure notice to be given.
- For the reasons set out above I conclude that none of the Human Rights Arguments put forward on behalf of the Appellant succeeds on the facts of this case.
- I record for the sake of completeness that I consider the amount of the daily penalty is reasonable in the circumstances. It has not been shown to be unreasonable. I also record that I consider that it is a reasonable financial penalty for European Convention and Human Rights purposes.
- I also find that the penalty notice was sufficiently particularised both as a matter of domestic law (see Austin v Price and section 100(3) TMA) and as a matter of European and Human Rights Law.
- I have found, as a primary fact, that the officer did reasonably require all the documents specified in the section 19A Notice for the purposes of determining whether and if so the extent to which the taxpayer's return is incorrect and incomplete and that HMRC cannot reasonably conclude their enquiry without the documents directed to be supplied by the General Commissioners for the reason given by the General Commissioners namely the magnitude if the discrepancy between the original and revised accounts and because only one entry was common between the two sets of accounts.
- Accordingly for these reasons and those set out above, Case SC3101/05 concerning the Appellant's application for the issue a Closure Notice under section 28A TMA is refused and the case dismissed.
- I have found that (inter alia):
- Accordingly, for these reasons and those set out above, the appeal in Case SC3055/06 concerning the Appellant's appeal against the Penalty Notice dated 23 January 2006 is dismissed.
- HMRC did not seek their costs in this case. Accordingly, I express no view as to the reasonableness or otherwise of Mr Scott's behaviour.
- The appeal about penalties is dismissed and the application for the issue of a closure notice is refused. There is no order as to costs HMRC not having applied for costs.
SPC00577
PENALTY NOTICE – failure to comply with General Commissioners' direction-no reason for non compliance shown – appeal dismissed
CLOSURE NOTICE – eleven-fold increase in profits in amended return – failure to produce business records reasonably required by HMRC to check return-refusal of closure notice shown to be reasonable in all the circumstances
THE SPECIAL COMMISSIONERS MAN SC 3101/05
MAN SC 3055/06
B W JACQUES Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS Respondents
Special Commissioner: ADRIAN SHIPWRIGHT
Sitting in public in Manchester on 15 and 17 November 2006
Nigel Ginniff, Counsel, instructed by Trevor Scott, accountant, for the Appellant
Gerald Facenna, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2007
DECISION
Introduction
Abbreviations
"The Appellant" Mr Jacques and where appropriate
includes his agent, Mr Scott;
"The General Commissioners' The Direction to provide the specified
Direction" documents to HMRC within fourteen
days issued by the General Commissioners for the division of Gateshead on 27 January 2005;
"HMRC" Her Majesty's Customs and Revenue;
"Mr Ingram" the Appellant's original Agent;
"The Penalty/Penalty Notice" the penalty under section 97AA TMA issued on 23 January 2006 and contained in a letter dated 23 January 2006;
"Mr Scott" the Appellant's agent now and at the
relevant times; and
"TMA" Taxes Management Act 1970 as
amended.
The Issues and the Law
Heading Paragraph
a. Introduction 1-3
b. Abbreviations 4
c. The Issues 6-7
d. The Law 8-14
e. The Authorities 15-16
f. The Evidence and Matters Affecting It 17-22
g. Findings of Fact 23-50
h. Submissions of the Parties 51-53
i. Discussion 54-81
j. Conclusion 82-85
k. Costs 86
l. Result 87
The Issues
(1) Are there reasonable grounds for not issuing a Closure Notice within a
specified period?
(2) Whether the Penalty Notice should stand or not?
(1) It is for the Respondent ("HMRC") to show that there are reasonable
grounds for not issuing the closure notice.
(2) It is for the Appellant to show that the Penalty Notice should not stand.
The Law
"(1) This section applies where an officer of the Board gives notice of enquiry under section 9A (1) or 12AC (1) of this Act to a person ("the taxpayer").
(2) For the purpose of the enquiry , the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice—
(a) to produce to the officer such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which —
(i) the return is incorrect or incomplete, or
(ii) in the case of an enquiry which is limited under section 9A(5) or 12AC(5) of this Act, the amendment to which the enquiry relates is incorrect, and
(b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose.
(2A) The officer of the Board may also (whether or not he imposes a requirement under subsection (2) above), by a notice in writing, require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice—
(a) to produce to the officer such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of making a determination for the purposes of section 9D(1)(c) or 12AE(1)(c) of this Act, and (b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose.
(3) To comply with a notice under subsection (2) or (2A) above, copies of documents may be produced instead of originals; but—
(a) the copies must be photographic or otherwise by way of facsimile; and
(b) if so required by a notice in writing given by the officer, in the case of any document specified in the notice, the original must be produced for inspection by him within such time (which shall not be less than 30 days) as may be specified in the notice.
(4) The officer may take copies of, or make extracts from, any document produced to him under subsection (2), (2A) or (3) above.(5) A notice under subsection (2) or (2A) above does not oblige the taxpayer to produce documents or furnish accounts or particulars relating to the conduct of —
(a) any pending appeal by him, or
(b) any pending referral to the Special Commissioners under section 28ZA of this Act to which he is a party.
(6) An appeal may be brought against any requirement imposed by a notice under subsection (2) above to produce any document or to furnish any accounts or particulars.
(7) An appeal under subsection (6) above must be brought within the period of 30 days beginning with the date on which the notice under subsection (2) or (2A) above is given.
(8) Subject to subsection (9) below, the provisions of this Act relating to appeals shall have effect in relation to an appeal under subsection (6) above as they have effect in relation to an appeal against an assessment to tax.
(9) On an appeal under subsection (6) above section 50(6) to (8) of this Act shall not apply but the Commissioners may—
(a) if it appears to them that the production of the document or the furnishing of the accounts or particulars was reasonably required by the officer of the Board for the purpose mentioned in subsection (2) or (2A) above, confirm the notice under that subsection so far as relating to the requirement; or
(b) if it does not so appear to them, set aside that notice so far as so relating.
(10) Where, on an appeal under subsection (6) above, the Commissioners confirm the notice under subsection (2) or (2A) above so far as relating to any requirement, the notice shall have effect in relation to that requirement as if it had specified 30 days beginning with the determination of the appeal.
(11) The determination of the Commissioners of an appeal under subsection (6) above shall be final and conclusive (notwithstanding any provision having effect by virtue of section 56B of this Act).
"(1) An enquiry under section 9A (1) of this Act is completed when an officer of the Board by notice (a "closure notice") informs the taxpayer that he has completed his enquiries and states his conclusions.
In this section "the taxpayer" means the person to whom notice of enquiry was given.
(2) A closure notice must either—
(a) state that in the officer's opinion no amendment of the return is required, or
(b) make the amendments of the return required to give effect to his conclusions.
(3) A closure notice takes effect when it is issued.
(4) The taxpayer may apply to the Commissioners for a direction requiring an officer of the Board to issue a closure notice within a specified period.
(5) Any such application shall be heard and determined in the same way as an appeal.
(6) The Commissioners hearing the application shall give the direction applied for unless they are satisfied that there are reasonable grounds for not issuing a closure notice within a specified period.
"(1) Where a person fails to comply with a notice or requirement under section 19A (2), (2A) or (3) of this Act or paragraph 6(2) or (3A)(b) of Schedule 1A to this Act, he shall be liable, subject to subsection (4) below—
(a) to a penalty which shall be £50, and
(b) if the failure continues after a penalty is imposed under paragraph (a) above, to a further penalty or penalties not exceeding the relevant amount for each day on which the failure continues after the day on which the penalty under that paragraph was imposed (but excluding any day for which a penalty under this paragraph has already been imposed).
(2) In subsection (1) (b) above 'the relevant amount' means—
(a) in the case of a determination of a penalty by an officer of the Board under section 100 of this Act, £30;
(b) in the case of a determination of a penalty by the Commissioners under section 100C of this Act, £150.
(3) An officer of the Board authorised by the Board for the purposes of section 100C of this Act may commence proceedings under that section for any penalty under subsection (1)(b) above, notwithstanding that it is not a penalty to which subsection (1) of section 100 of this Act does not apply by virtue of subsection (2) of that section.
(4) No penalty shall be imposed under subsection (1) above in respect of a failure within that subsection at any time after the failure has been remedied.
"(1) Subject to subsection (2) below and except where proceedings for a penalty have been instituted under section 100D below …, an officer of the Board authorised by the Board for the purposes of this section may make a determination imposing a penalty under any provision of the Taxes Acts and setting it at such amount as, in his opinion, is correct or appropriate.
(2) Subsection (1) above does not apply where the penalty is a penalty under—
(a) section 93(1) above as it has effect before the amendments made by section 162 of the Finance Act 1989 or section 93(1)(a) above as it has effect after those amendments,
(b) section 94(1) above as it has effect before the substitution made by section 83 of the Finance (No 2) Act 1987,
(c) section 98(1) above as it has effect before the amendments made by section 164 of the Finance Act 1989 or section 98(1)(i) above as it has effect after those amendments, or
(d) paragraph (a)(i) of section 98A(2) above as it has effect by virtue of section 165(2) of the Finance Act 1989 or
(e) section 98B(2)(a) above, or
(f) section 98C(1)(a) above.
(3) Notice of a determination of a penalty under this section shall be served on the person liable to the penalty and shall state the date on which it is issued and the time within which an appeal against the determination may be made.
(4) After the notice of a determination under this section has been served the determination shall not be altered except in accordance with this section or on appeal.
(5) If it is discovered by an officer of the Board authorised by the Board for the purposes of this section that the amount of a penalty determined under this section is or has become insufficient the officer may make a determination in a further amount so that the penalty is set at the amount which, in his opinion, is correct or appropriate…".
(1) An appeal may be brought against the determination of a penalty under section 100 above and, subject to sections 93, 93A and 95A of this Act and the following provisions of this section, the provisions of this Act relating to appeals shall have effect in relation to an appeal against such a determination as they have effect in relation to an appeal against an assessment to tax.
(2) Subject to sections 93(8) and 93A(7) of this Act on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but—
(a) in the case of a penalty which is required to be of a particular amount, the Commissioners may—
(i) if it appears to them that no penalty has been incurred, set the determination aside,
(ii) if the amount determined appears to them to be correct, confirm the determination, or
(iii) if the amount determined appears to them to be incorrect, increase or reduce it to the correct amount,
(b) in the case of any other penalty, the Commissioners may—
(i) if it appears to them that no penalty has been incurred, set the determination aside,
(ii) if the amount determined appears to them to be appropriate, confirm the determination,
(iii) if the amount determined appears to them to be excessive, reduce it to such other amount (including nil) as they consider appropriate, or
(iv) if the amount determined appears to them to be insufficient, increase it to such amount not exceeding the permitted maximum as they consider appropriate.
(3) Without prejudice to any right to have a case stated under regulation 22 of the General Commissioners Regulations or any right of appeal under section 56A of this Act, an appeal from a decision of the Commissioners against the amount of a penalty which has been determined under section 100 above or this section shall lie, at the instance of the person liable to the penalty, to the High Court or, in Scotland, to the Court of Session as the Court of Exchequer in Scotland; and on that appeal the court shall have the like jurisdiction as is conferred on the Commissioners by virtue of this section.
(1) An assessment or determination, warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.
(2) An assessment or determination shall not be impeached or affected—
(a) by reason of a mistake therein as to—
(i) the name or surname of a person liable, or
(ii) the description of any profits or property, or
(iii) the amount of the tax charged, or
(b) by reason of any variance between the notice and the assessment or determination.
The Authorities
Funcke v France [1993] 1 CMLR 897; (1933) 16 EHRR 297
Hearney and McGuiness v Ireland (2001) 33 EHRR 12
King v Walden (HMIT) [2001] STC 822
R v Allen [2002] 1 AC 509; [2001] STC 1537
Allen v United Kingdom (2002) 35 EHRR CD289
Austin v Price (SPC 00426); [2004] STC (SCD) 487
King v United Kingdom (No 2) [2004] STC 911
Harvard Sharkey v HMRC (SPC 00459); [2005] STC (SCD) 336
R (Murat) v IRC [2005] STC 184
Shannon v United Kingdom (2006) 42 EHRR 31
Harvard Sharkey v HMRC [2006] EWHC 300 (Ch)
The Evidence and matters affecting it
(1) Trevor Scott, the Appellant's Agent;
(2) June Kennerley, HMRC Inspector Taxes, the Appeals Officer dealing with these appeals;
(3) Alan Cove, HMRC Inspector Taxes, the then Manager of the Area Compliance team and HMRC's representative at the General Commissioners' hearing;
(4) Keith Longstaff, HMRC Inspector Taxes, the enquiry officer.
Witness statements were provided for all the witnesses. These were treated as the witness in question's evidence in chief. The witnesses were cross examined.
(1) HMRC had an ulterior motive in what they did in relation to this case and enquiry;
(2) HMRC were acting in bad faith and deliberately not telling the truth;
(3) HMRC had undertaken a cover up and invented a story to back this up;
(4) as part of this they had made subsequent additions to documents.
This influenced his evidence and the way he gave it. Nothing in the evidence substantiated his belief. He also tried to take semantic points when giving evidence which did not add to the clarity or credibility of his evidence. I have no reason to think that his evidence was other than genuine but it was not always convincing.
Findings of Fact
Overview
(1) The documents directed to be produced by the General Commissioners have not, to date, actually been provided or produced to HMRC. HMRC have not physically had all the documents either as originals or as copies. The Direction has not been complied with in fact and I so find.
(2) Some documents have been provided but, somewhat surprisingly, the sticking point is the return of the documents previously provided to HMRC.
(3) Purported offers have been made by Mr Scott that the documents might be made available to HMRC if HMRC agreed a time limit of one day or two half days and/or Mr Longstaff was not to be involved. None of theses offers amounted to a real or meaningful production of the documents to allow HMRC any meaningful use of the documents. The documents were not in fact produced or provided. I find this as a primary fact.
(4) There was no evidence that Mr Scott intended that the documents previously produced to HMRC should be made available again to HMRC. In fact there was evidence that he did not. As Mr Scott said in his letter of 31 May 2005, "Daily penalties will not persuade us to let you have the records…"
(5) There was an eleven fold increase in the profit shown in the revised accounts as compared with the original return. Only one entry was the same in both accounts.
(6) Without the documents directed to be produced HMRC cannot properly conclude their enquiry. They cannot check the return dealing with business profits without access to the relevant business records. I find this as a primary fact.
(7) Mr Scott recorded various conversations without the consent of the other parties. No point was taken as to the admissibility of the transcripts of these recordings. They were included in the bundle.
(8) There was no evidence of any intended criminal proceedings or threats of such proceedings.
Chronology
(1) The Appellant's self assessment return for the year 2002-2003 was the subject of enquiry. This return had been prepared and submitted by Mr Jacques' previous agent, Mr Ingram ("Mr Ingram"). A section 9A TMA enquiry was opened in February 2004.
(2) On 18 February 2004 notice of enquiry under section 9A TMA was sent to the Appellant and his previous agent, Mr Ingram. A request was also made for information and documents.
(3) On 5 March 2004 Mr Ingram provided the information and documents requested to HMRC.
(4) On 15 March 2004 further information was supplied by Mr Ingram following a request from HMRC.
(5) Mr Jacques then appointed Mr Scott as his agent in place of Mr Ingram. Mr Jacques informed HMRC of the change of agent.
(6) By letter dated 2 April 2004 the Appellant asked for the return of the documents so that Mr Scott could examine them.
(7) The documents were returned on 8 April 2004 without being copied.
(8) A payment of tax on account was made.
(9) On 24 May 2004 an amendment to the Appellant's return for 2002-2003 was received by this and the accompanying revised accounts showed an increase in the taxable profit from £1,875 to £22,540.
(10) A further payment of tax was then made.
(11) In June and July 2004 requests were made by HMRC for information and documents including the return of the documents previously supplied. These were not forthcoming.
(12) On 30 June 2004 Mr Longstaff met Mr Scott. Following that meeting M Longstaff contacted Mr Ingram. This was the basis of the complaint as to breach of confidence. This is discussed below.
(13) The only evidence as to contact between Mr Ingram and Mr Longstaff is Mr Longstaff's note of telephone call of 7 July 2004 and Mr Ingram's letter of 15 July 2004.
(14) On 3 August 2004 notice under section 19A TMA was issued requiring the production of various documents including the business records.
(15) On 2 September 2004 the Appellant appealed to the General Commissioners against the section 19A Notice.
(16) The General Commissioners dismissed the appeal against the section 19A Notice because of the magnitude of the discrepancy between the accounts The Appellant was given 14 days to produce the documents and information. This was unconditional. A direction to this effect was given without any conditions, for example, as to time or personnel. To date the Appellant has not produced the documents and information as he was directed. The direction has not been complied with.
(17) The Appellant made a closure application which was heard by the General Commissioners on 6 April 2005. The General Commissioners rejected the closure application on the grounds in particular of the eleven-fold increase in profits.
(18) On 24 February 2005 an initial penalty for failure to comply with the section 19A TMA Notice was issued.
(19) On 23 March 2005 the Appellant appealed against the Penalty Notice. A further closure application was made.
(20) On 18 May 2005 the General Commissioners heard the penalty appeal and the closure application. The General Commissioners dismissed the penalty appeal and rejected the closure application.
(21) On 11 July 205 the Appellant applied directly to the Clerk to the Special Commissioners for a closure notice.
(22) On 29 July 2005 HMRC issued a daily penalties notice against the Appellant for the continued failure to comply with the section 19A notice.
(23) On 25 August the Appellant appealed to the Special Commissioners against the penalties notice. At a preliminary hearing on 8 December 2005 the appeal was found to be invalid and the notice defective. The notice was withdrawn. The closure application remained.
(24) On 23 January 2006 Notice of determination of daily penalties for the continued failure to comply with the section 19A was issued.
(25) On 21 February 2006 the Appellant appealed against the penalty notice issued on 23 January 2006.
(26) The outstanding closure notice application and the appeal against the penalty notice are the subject of these proceedings.
Specific Findings
(1) The officer did reasonably require the documents specified in the section 19A Notice for the purposes of determining whether, and if so the extent to which, the taxpayer's return is incorrect and incomplete. In my view, I am constrained to do this by the Decision of the General Commissioners under section 19(11) TMA[1]. However, if I am not so bound then I find as a primary fact myself that the officer did reasonably require the documents specified in the section 19A Notice for the purposes of determining whether and if so the extent to which the taxpayer's return is incorrect and incomplete. Either as a mater of law or as a finding of primary fact the officer did reasonably require the documents including those previously produced to HMRC.
(2) HMRC cannot reasonably conclude their enquiry without the documents directed to be supplied by the General Commissioners for the reason given by the General Commissioners namely the magnitude of the discrepancy between the original and revised accounts and because only one entry was common between the two sets of accounts.
(3) The documents were not offered to be available to HMRC in compliance with Section 19A TMA in any meaningful sense. There were not and have not been provided or produced to HMRC.
(4) The amount of the penalty is appropriate in all the circumstances. There was no evidence that it was inappropriate.
(5) The Penalty Notice dated 23 January 2006 is not bad in law. It is sufficient in its particularity of the alleged failures of the Appellant. There was only one direction to provide and one Penalty notice under the provisions of the TMA. The Appellant was well aware of this. This is corroborated by the attempts by Mr Scott to provide the documents on the additional terms he wished to dictate rather than on the terms of the Direction. There is an internal inconsistency in saying that there was insufficient particularity of the defects in compliance whilst trying to claim that the purported offers met the requirements of the Direction.
(6) The Penalty Notice does not seek to impose a penalty on the Appellant for an alleged failure to provide information the disclosure of which would breach the Appellant's right against self incrimination and a fair trial under Article 6 of the Convention on Human Rights within Schedule 1 Human Rights Act 1998. This is discussed below.
(7) Whilst HMRC has already seen some of the books and records it has not been provided with all the documents directed to be produced or provided. HMRC has not refused any reasonable offer or offers to produce or provide the documents directed to be provided or produced. No real or meaningful offers have been made to do so. As no real or meaningful offers have been made, as I have found as a primary fact, there cannot have been any refusal of a real or meaningful offer. I also find this as a fact. The essential matter of fact is that the specified documents directed to be provided or produced as I have found as a primary fact have not been provided or produced.
(8) There is no conflict with the Appellant's Human Rights the continuation of the enquiry is entirely reasonable.
(9) There was no evidence of any intended criminal proceedings. This was true as to both domestic and European Law. I find this as a fact.
Correspondence
Meetings
Telephone Calls
Dr Avery Jones and the Tape
"I would also record that Mr Scott helpfully agreed to provide the Inspector with a tape recording and transcript of the meeting on 30 June 2004 so that the context of the quoted remark could be seen. Perhaps I could also suggest that it might help to defuse the situation if the Inspectors involved were to write to Mr Scott with an explanation of what information they gave and obtained from the former accountant, and whether they made any recordings of conversations with the Appellant".
The 1 February call
The "Offers"
Introductory
(1) November 2004
(2) April 206
November 2004
"After much discussion and argument, and considering the taxpayer's position and anxious state of mind, but despite the Revenue's attitude and contradictory statements, I made a further offer of the section 19a information. I said that subject to checking with a solicitor about various matters and reviewing previous Revenue statements on the subject, also wanting to know exactly what Mr Longstaff wanted to do with the records, we offered to deliver the business books and records to Sunderland Tax Office for a day, or two half days of their choice, the Private Records for as long as they liked, also the Statement of Assets and Liabilities. I said the Revenue could photocopy whatever it liked, they could have as many clerks as it wanted working on the records but I would collect them at the end of the day or two days. Mr Cove didn't want to take up the offer, he said one day was unreasonable, he said he couldn't see why they should have to photocopy records and wanted the records for ten days. However, that was the offer and I asked Mr Cove to think about it."
April 2006
"Following advice and discussions regarding Mr Jacques' case, it was decided to make a further offer on 6 April 2006 with regard to the section 19a information HMRC hadn't accessed. I specifically requested that if HMRC were going to consider this offer of delivering the information to the Tax Office as unacceptable and unreasonable, that they clearly and unambiguously state what is unreasonable about the offer. Ms Kennerley of Regional Appeals replied and accepted one of the suggested dates.
On 11 April 2006 I visited Wear & South Tyne's Offices at Gilbridge House at 10am and met with Ms Kennerley and a Mr Kuby. Despite Ms Kennerley not answering all my questions, which mainly related to the enquiry situation and taxpayer's rights, I offered the Officers access to the section 19a information HMRC had not seen. Ms Kennerley insisted on either leaving the records in their possession or photocopying everything. I let HMRC staff photocopy what they wanted, because it would have taken two full days to photocopy all the till rolls I stated it was impractical and suggested it would be easier to write down the totals and just photocopy a few till roll totals. Ms Kennerley would not back down on the matter, it seemed they were more interested in making a technical point rather than performing any practical work, I ended up stating a time restriction of a couple of hours hence, which was 1pm. Ms Kennerley and Mr Kuby access to the other section 19a information on the basis that the section 19a notice had not been complied with, when I pointed out facts to demonstrate the section 19a notice was already complied with, Ms Kennerley would neither confirm nor deny the facts I had stated."
HMRC Behaviour
Allegation of breach of confidence
" Note of Telephone Call
Between Mr Ingram (Agent)
Mr Longstaff (HM Inspector of Taxes)
Re Mr B Jacques
On: 7 July 2004
Mr Longstaff phoned and explained that he asked whether Mr Ingram had any problem in supplying the Inspector with:
1 – A copy of the sales ledger
2 – Details about how the closing stock had been arrived at.
The agent stated that he would forward theses as soon as possible.
Mr Longstaff stated that Mr Ingram has opened a PAYE Scheme for Mr Jacques in November 2003 and asked whether he could recall the events leading up to this. Mr Ingram stated that his then client had advised him that he wished to employ someone and in the circumstances he arranged for the scheme to be opened.
Keith Longstaff."
"Dear Mr Longstaff
Re: Mr B Jacques, … Gateshead, Tyne & Wear
In connection with our recent telephone conversation we enclose the following information you require:
I hope you find the information useful.
Yours sincerely."
Mr Scott's reasons for non-disclosure
(1) HMRC had an ulterior motive in what they did in relation to this case;
(2) HMRC were acting in bad faith and deliberately not telling the truth;
(3) HMRC had undertaken a cover up and invented a story to back this up;
(4) As part of this they had made subsequent additions to documents.
The Submissions of the Parties
The Appellant Submissions in outline
(a) The officer did not reasonably require the documents specified in the section 19A Notice for the purposes of determining whether and if so the extent to which the taxpayer's return is incorrect and incomplete.
(b) The documents were offered to be available to HMRC in compliance with Section 19A TMA but the offer was not accepted.
(c) The amount of the penalty is inappropriate in all the circumstances.
(d) The Penalty Notice dated 23 January 2006 is bad in law in that it is insufficient in its particularity of the alleged failures of the Appellant
(e) The Penalty Notice seeks to impose a penalty on the Appellant for an alleged failure to provide information the disclosure of which would breach the Appellant's right against self incrimination and a fair trial under Article 6 of the Convention on Human Rights within Schedule 1 Human Rights Act 1998.
(f) HRC has already seen the books and records and has refused reasonable requests to inspect the records again. In the light of the conflict with the Appellant's Human Rights the continuation of the enquiry was unreasonable.
(g) In summary the argument that:
(1) HMRC had acted unreasonably and in breach of the Human Rights Act;
(2) as HMRC has seen the documents it does not need to see them again. HMRC can do all that is necessary without them and so has not shown any reason for not issuing a closure notice.
HMRC's Submissions in outline
(a) The officer did reasonably require the documents specified in the section 19A Notice for the purposes of determining whether and if so the extent to which the taxpayer's return is incorrect and incomplete. How could he do this without the appropriate business records?
(b) The documents were not provided to HMRC in compliance with the Section 19A TMA Notice.
(c) The amount of the penalty is appropriate in all the circumstances. It is less than the maximum but sufficient to make the point without being meaningless.
(d) The Penalty Notice dated 23 January 2006 is not bad in law. The title to it specifies the Direction to which it relates and its date of issue.
(e) There is nothing here to engage the rule against self incrimination and/or to engage a fair trial under Article 6 of the Convention on Human Rights within Schedule 1 Human Rights Act 1998 (see Harvard Sharkey v HMRC).
Discussion
Introduction
(1) What does produce or provide mean in the context of this case?
(2) Has there been production here?
(3) Have HMRC shown there are reasonable grounds for not issuing a closure notice within a specified period?
(4) What are the Human Rights implications?
What does produce or provide mean?
"Produce or provide in the context of the General Commissioners' Decision in this case means allowing sufficient unrestricted use of all the documents in question to HMRC for HMRC to do such work, tests and other things such as photocopying in relation to those documents as is reasonable for HMRC to do in order to progress that stage of the inquiry".
(1) require HMRC to act reasonably as Administrative Law would require;
(2) allow HMRC sufficient access and use of the documents so as to give meaning to the provision;
(3) link the provision to the enquiry and its reasonable progression.
Has there been provision or production of the documents here?
Have HMRC shown there are reasonable grounds for not issuing a closure notice within a specified period?
Human Rights Aspects
Introduction
(1) The Penalty Notice seeks to impose a penalty on the Appellant for an alleged failure to provide information the disclosure of which would breach the Appellant's right against self incrimination and a fair trial under Article 6 of the Convention on Human Rights within Schedule 1 Human Rights Act 1998;
(2) Because of the references to penalties under section 95 TMA which are tax geared and have been held to be "criminal" for Convention purposes Article 6 was even more clearly engaged;
(3) Consequently, the penalty was bad and it would be a breach of the Appellant's Human Rights not to issue a closure notice.
Engagement of Convention Rights
"[17] It is common ground between the parties that the term 'criminal charge' has an autonomous meaning under the Convention. In Engel v Netherlands (No 1) (1976) 1 EHRR 647, [1976] ECHR 5100/71, para 82, the European Court of Human Rights (the European Court) established three criteria for determining whether proceedings are 'criminal' within the meaning of the Convention, namely (a) the classification of the offence under national law, (b) the nature of the offence, and (c) the severity of the penalty that the person concerned risked incurring: see also Customs and Excise Comrs v Han [2001] EWCA Civ 1040 at [61], [2001] STC 1188 at [61], [2001] 1 WLR 2253 citing AP, MP and TP v Switzerland (1997) 26 EHRR 541, [1997] ECHR 19958/92, para 39…
[39] Accordingly, the penalty under consideration in the present case is a very modest one (cf WS v Poland (15 June 1999, unreported)), which may be imposed in circumstances in which, as the Special Commissioner found in the present case, there is no enquiry into any criminal conduct on the part of the taxpayer but, rather, is imposed as the administrative means of securing the production of documents in connection with the taxpayer's tax return. In this respect, it is to be distinguished on the facts from the various cases relied upon by the appellant…
[44] The imposition of the £50 fixed penalty on the appellant not being a criminal charge within art 6(1), there is no scope for any complaint by the appellant that his privilege to remain silent and not to incriminate himself was infringed in the present case.
[48] That approach was followed by Moses J in R (on the application of Murat) v IRC [2004] EWHC 3123 (Admin), [2005] STC 184 in which the applicant appealed against the imposition of penalties under TMA, s 97AA(1)(a) and (1)(b) for refusing to provide information pursuant to a s 19A notice. Moses J rejected an argument that the requirement to provide the information breached the privilege against self-incrimination. He said (see [2005] STC 184 at [7]):
'[7] … there is no question of self-incrimination. The purpose of requiring him to produce the balance sheet is not for the purposes of any criminal prosecution at all. It is merely in pursuance of his obligation to provide figures as a taxpayer so that a correct assessment of liability can be reached.'
Criminal / Civil Distinction
"Concurring Opinion of Judge Matscher concerning paragraphs 41 to 44 of the Judgment
Although I voted in favour of finding that there had been a violation of Article 6(1), I should nonetheless like to point out the following. Under the fiscal legislation (on taxes, customs and exchange control), a person who does not submit the required returns or does not produce documents relating to them within the time-limits lad down in law (or by the authorities) has pecuniary penalties (astreintes) in the form of 'reasonable' fines imposed on him or else his tax liability is estimated—also in a 'reasonable' manner—by the appropriate authorities. This is not in itself inconsistent either with the requirements of a fair trial or with the presumption of innocence (in the sense that one cannot be obliged to give evidence against oneself).
Rules of this kind are indeed common in the countries of Europe. In the present case, however, the French authorities brought criminal proceedings against the applicant in order to have a pecuniary penalty imposed on him, and this went beyond what I consider to be compatible with the principles I have just set out."
Self incrimination and the Penalty Notice
Self incrimination and section 95 references
ECHR requires Closure Notice?
Conclusion
Conclusion
Case SC3101/05 Application for Closure Notice refused
Case SC3055/06 Appeal Dismissed
(a) All the documents specified in the General Commissioners' direction have even now not been supplied to HMRC;
(b) There were no meaningful offers made for Provision. There were restrictions ought to be imposed by Mr Scott as to personnel and/or time.
(c) The Appellant had accordingly not complied with the Direction.
(d) The Penalty Notice was properly made and in proper form.
(e) The amount of the daily penalty was reasonable and proportionate.
(f) There was no breach of Mr Jacques Human Rights.
Costs
Result
ADRIAN SHIPWRIGHT
SPECIAL COMMISSIONER
RELEASE DATE: 11 January 2007
MAN SC 3101/05
MAN SC 3055/06
Note 1 This provides: “(11) The determination of the Commissioners of an appeal under subsection (6) above shall be final and conclusive (notwithstanding any provision having effect by virtue of section 56B of this Act)”.
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