A special commissioner dismissed an appeal by a taxpayer against the Revenue's refusal to issue a closure notice in respect of an inquiry into his tax return and the issue of a penalty notice, where the taxpayer had failed to comply with an unconditional direction by the general commissioners to supply certain documents and business records needed to complete their inquiry.

Facts

The taxpayer's self-assessment return for the year 2002–03 was the subject of an inquiry under TMA 1970, s. 9A. The taxpayer provided certain information and documents requested by the Revenue. The taxpayer then appointed a new agent (S) and informed the Revenue of the change of agent. By letter dated 2 April 2004 the taxpayer asked for the return of the documents so that S could examine them. The documents were returned without being copied and a payment of tax on account was made.

In May 2004 an amendment to the taxpayer's return for 2002-03 was received and the accompanying revised accounts showed an increase in the taxable profit from £1,875 to £22,540. A further payment of tax was then made. Further requests were made by the Revenue for information and documents including the return of the documents previously supplied. When those were not forthcoming, a notice under TMA 1970, s. 19A was issued requiring the production of various documents including the business records. The taxpayer appealed to the general commissioners against that notice. The appeal was dismissed because of the magnitude of the discrepancy between the accounts. The taxpayer was directed to produce the documents and information within 14 days but that direction was not complied with.

The taxpayer made a closure application which was rejected by the general commissioners on the grounds in particular of the eleven fold increase in profits. In February 2005 an initial penalty for failure to comply with the s. 19A notice was issued. The taxpayer appealed against the penalty notice and a further closure application was made. The general commissioners dismissed the penalty appeal and rejected the closure application. The taxpayer then applied directly to the clerk to the special commissioners for a closure notice.

In July 2005 the Revenue issued a daily penalties notice against the taxpayer for the continued failure to comply with the s. 19A notice. The taxpayer appealed to the special commissioners against the penalties notice but the appeal was found to be invalid and the notice defective. The notice was withdrawn. The closure application remained. In January 2006 notice of determination of daily penalties for the continued failure to comply with the s. 19A notice was issued and the taxpayer appealed. The outstanding closure notice application and the appeal against the penalty notice were the subject of the current proceedings.

Issues

Whether there were reasonable grounds for not issuing a closure notice within a specified period; and whether the penalty notice should stand.

Decision

The special commissioner (Adrian Shipwright) dismissing the appeals said that the evidential burden in each of the matters was different. It was for the Revenue to show that there were reasonable grounds for not issuing the closure notice. It was for the taxpayer to show that the penalty notice should not stand.

Both as a matter of law and on the facts, the Revenue reasonably required the documents specified in the s. 19A notice for the purposes of determining whether, and if so the extent to which, the taxpayer's return was incorrect and incomplete. The documents were not offered to be available to the Revenue in compliance with s. 19A in any meaningful sense. They were not and had not been provided or produced to the Revenue. The amount of the penalty was appropriate in all the circumstances. There was no evidence that it was inappropriate.

The penalty notice of January 2006 was not bad in law. It was sufficient in its particularity of the alleged failures of the taxpayer. There was only one direction to provide and one penalty notice under the provisions of the Taxes Management Act and the taxpayer was well aware of that. The penalty notice did not seek to impose a penalty on the taxpayer for an alleged failure to provide information the disclosure of which would breach the taxpayer's right against self-incrimination and a fair trial under art. 6 of the European Convention on Human Rights within Sch. 1 to the Human Rights Act 1998.

It was common ground that the production or provision of the documents specified in a s. 19A notice had to be real and meaningful. The words ‘produce or provide’ in the context of the general commissioners’ decision in this case meant allowing sufficient unrestricted use of all the documents in question to the Revenue for them to do such work, tests and other things (such as photocopying) in relation to those documents as it was reasonable to do in order to progress that stage of the inquiry. It included allowing the Revenue sufficient time to do what was necessary acting reasonably as administrative law required and sufficient access and use of the documents so as to give meaning to the provision and link the provision to the enquiry and its reasonable progression. The documents had not actually been provided and so the general commissioners’ direction had not been complied with. Offers to make production subject to conditions did not comply with an unconditional direction to provide the documents within 14 days. When considerably more than a year had elapsed since the expiry of the date for production there was no margin in favour of the taxpayer.

Without the production or provision of all the documents specified in the general commissioners’ direction, the Revenue could not properly conclude their enquiry. The discrepancy between the amount of the profit originally declared and that subsequently declared alone required the business records to be considered by the Revenue before closing the inquiry. It could not be said that it would be proper for them not to enquire into the difference. It was entirely reasonable for them to do so and without the provision of the documents the general commissioners had directed be provided they could not reasonably do so.

Accordingly, the Revenue had shown there were reasonable grounds for not issuing a closure notice within a specified period. The general commissioners correctly took the view that in the circumstances it would not be reasonable to issue a closure notice. As regards the taxpayer's human rights, the penalty under consideration in the present case was a very modest one which might be imposed in circumstances in which there was no enquiry into any criminal conduct on the part of the taxpayer but, rather, was imposed as the administrative means of securing the production of documents in connection with the taxpayer's tax return. The imposition of the £50 fixed penalty on the taxpayer not being a criminal charge within art. 6(1), there was no scope for any complaint by the taxpayer that his privilege to remain silent and not to incriminate himself was infringed in the present case.

The penalty here was under s. 97AA. The references to s. 95 by the Revenue were not threats. The warnings of its possible application were a proper exercise of the Revenue's duty to inform taxpayers in the circumstances. It could not be intended that taxpayers could not be informed of the position if there was to be a fair trial of those who evaded tax. That could not have been the intended policy or the correct purposive construction. What the Revenue did here in difficult circumstances was within what was proper and did not breach any of the taxpayer's human rights.

(2007) Sp C 577.
Decision released 11 January 2007.